Moon of Alabama Brecht quote
May 01, 2005

'The Economist' on Oil - the Corporate View on Peak Oil

The Economist has published in its most recent edition a survey of oil, which I promised to review. As it is behind a subscription wall, the links (below the jump) are unlikely to be accessible to most of you, so I have tried to summarise its content before critiquing it.



The survey is an interesting contrast before good insights on the oil markets, the behavior of the oil majors, and the importance of government regulations, and a deliberately optimist take on "peak oil" and the likelihood for alternatives (especially fuel cells) to replace oil use in transport.

In a nutshell, this is the well-informed, but deliberately rosy official view of corporate America.

Now complete with comments on second part

The survey is actually quite short for the Economist; it comprises 6 articles which I will go through in succession:

Oil in troubled waters (Intro article)
Not so shocking (about oil prices)
Global or National (about the threats to the oil majors)
The incredible shrinking companies (about how oil reserves are booked)
The bottomless beer mug (about peak oil)
Consider the alternatives (the conclusion - there will be alternatives).

1. Oil in troubled waters

In this introductory article, the currently high prices are described, and explained, for the most part intelligently:

- the initial cause is a conscious decision by the Saudis to track inventory levels in the West, and to lower production whenever such inventories rise too much from their perspective. (That decision followed the ill-timed 1997 OPEC decision to increase quotas just as the Asian crisis started, thus causing the painful - for them - fall in prices of oil to the low teens or worse);

- demand growth has been stronger than expected, lead by both the US and China, and this, despite the significant rise in oil prices in recent years;

- the geopolitical premium, linked to instability in Irak, the de facto re-nationalisation of Yukos and other nationalistic and/or anti-private sector policies in Russia, and Chavez's stridently anti-American tone;

- some speculation on the financial markets, which the Economist dismisses as it has actually been declining since March 2004 (as measured by net "long" positions, i.e. the amount of bets that prices will increase).

The result has been that spare capacity has reached record lows, as shown in this graph:


The Economists thinks that demand growth will slow down (China's demand growth being "unsustainable") and links to a disputed CERA (Cambridge Energy Research Associates, a respected consultancy in the sector) study that "rivers of oil" are about to come on stream from fields under development in the next few years, adding up to 13 mbd of new capacity (net of declines elsewhere).

They conclude this first article by saying that prices could just as easily go to 100$/b or to 10$/b. While this may be a chickening out, I personally think that the simple acknowledgement that 100$ oil is very much possible is a very strong message from them, even if it is an indirect one.

2. Not so shocking

Their second article goes on to say that oil prices are not so important anyway, as their impact on the economy is much less than it used to be.


It tempers that optimism by noting that we may be getting close to levels where further increases could hurt the economy, and that oil-importing developping countries are suffering already. Also, the dependence of our transport sector on oil has been underlined more starkly than ever.

Nothing new or objectionable in that part.

3. Global or national?

This part, which is about the oil majors, is probably the most interesting of the whole study. After noting the exceptional profits of the big oil companies, it notes that:

the chief factor behind today's profits is the surge in the oil price. And beyond that mountain of profits, the industry faces challenges that could ultimately wipe out some or most of these firms, once venerated as the Seven Sisters.

The biggest firms may be running out of good ways to invest their money. Oil bosses such as BP's Lord Browne and Exxon's Lee Raymond vigorously deny it, but it seems that the majors, though cash-rich, are opportunity-poor, just when their dwindling reserve base badly needs topping up.

“Oil is a depleting asset. Every day, if we don't spend money and find more oil, we lose assets. Most oil companies, by doing nothing, will shrink to one-fifth today's size.”

Oil majors's existing assets (first of all in the North Sea, Alaska or the Gulf of Mexico) are "entering periods of rapid decline", and they are now facing the challenge of having to go seek more difficult and more expensive reserves in places like ultra-deep offshore in the Gulf of Guinea, the landlocked Caspian basin or unfriendly countries like Russia or Venezuela. Worse, most of the remaining reserves are in countries that are totally closed off to them.

This table, which I find the most significant of the whole study, shows who controls today's existing reserves (supposing that the numbers are correct):


It's pretty unusual to see a table where Exxon, BP or Chevron are near the bottom, right? Well, that's the reality of today's oil business, and a worrying one for all of us. Big Oil is running out of places where to invest, and the national oil companies have no real incentive to invest in new production capacity (it costs money "better" used by their governments, and it puts downwards pressure on oil prices, thus reducing the value of their current production).

So the oil majors are turning to "drilling on Wall Street" (i.e. buying rivals to boost their reserves), to unconventional fuels (like Canadian tar sands) and to natural gas, with uncertain prospects in temrs of the volumes required.

(As a side note, the Economist says that this is bad news for the environment, as national oil companies are much less responsive to pressure form NGOs than the oil majors are).

At this point in the survey, there is nothing really objectionable. It presents a reasonably balanced view of the oil markets and the factors influencing it (although it glosses over the Iraqi war), of the short term economic consequences of more expensive oil, and it has a good perspective on the challenges faced by the oil majors, many of which I agree with and have pointed out in previous diaries.

4 The incredible shrinking companies

As the above table shows, the reserves of what we call the oil majors are actually tiny compared to those held by national oil companies of a number of countries, and are actually behind the reserves of the semi-private Russian oil&gas companies (note in that respect that Gazprom holds one quarter of the world reserves of natural gas, so the number for them is incorrect - they should be above 100,000 mboe and thus in the top 5 of this list).

This fourth article focuses on the recent reserve reevaluations that have occurred in the past year, most publicly in the case of Shell, which had to reevaluate its reserves downwards significantly.

The article essentially describes how the SEC requirements, which drive the reserve disclosures of the (quoted) Western oil majors, are imperfect and cause arbitrary changes in reserve bookings:

For example, oil companies are required to recalculate the viability of their reserves each year, using the oil price at year-end. Never mind that no oilman plans his investments using that arbitrary price. In 2004, the price of heavier grades of crude oil collapsed at the end of the year. Even though that proved a brief and unrepresentative blip, firms listed on American stockmarkets had to write off vast quantities of reserves on paper.

The Economist also laments about the fact that new technology (such as sophisticated seismic studies) is not taken into account, and, to their credit, that there is little transparency in how each oil company books its reserve. It suggests that the oil industry provide what the mining industry does, i.e. a public database of all fields so that independent assessments of reserves can be made. This would of course require the big reserve-holding nations to cooperate, which they have so far been unwilling to do.

Although the arguments presented by the Economist are reasonable, the article does not go into the details of the reasons why reserve estimates may be wrong or not in various countries, and sounds like the whining that comes from corporates unhappy to comply with rules that give out unpredictable results that may surprise the capital markets...

This leads us to the most interesting article of the survey, that on peak oil, whose title says it all:

5. A bottomless bear mug

The Economist does not believe in peak oil. They do mention it, and provide some links to serious websites about peakoil (such as and, but the whole article is meant to contradict them.

I'll give you a taste of their arguments:

[T]his argument is wrong both on a philosophical and a practical level. The philosophical problem, says Michael Lynch of EnergySEER, a consultancy, is that the pessimists treat the level of recoverable oil resources as fixed—like the amount of beer in that mug. In fact, expert estimates on the ultimate recoverable resource base have consistently grown over the past few decades, even though the world has been guzzling oil as if there was no tomorrow (see chart).

Peter Odell of Rotterdam's Erasmus University points out that “since 1971, over 1,500 billion barrels have been added to reserves. Over the same 35-year period, under 800 billion barrels were consumed. One can argue for a world which has been ‘running into oil' rather than ‘out of it'.”

What makes the estimates go up continuously is a combination of economics and innovation. The IEA explains the process this way: “Reserves are constantly revised in line with new discoveries, changes in prices and technological advances. These revisions invariably add to the reserve base.”

A few decades ago, the average oil recovery rate from reservoirs was 20%; thanks to remarkable advances in technology, this has risen to about 35% today. But despite this improvement, two-thirds of the oil known to exist in reservoirs is still abandoned as uneconomic, leaving room for tomorrow's discoveries or innovations to lift recovery rates and magically push the global Hubbert's peak even further towards the horizon.

It is a bit sad to see the Economist use an argument which is fully covered by the peak oil analysts, i.e. the difference between total physical reserves and economically recoverable reserves. There have been significant improvements to the second category, through the use of new technology or cost savings, and it is likely that durably higher oil prives will allow to increase that number again by making previously too costly reserves economical under the new price conditions. But that misses the point that physical reserves do not change, and that the discovery rate HAS been declining.

Saying that we squeeze more of what we know we have is fine, but does not really contest peak oil, it just moves it by a few years. Focusing on the date only obfuscates the underlying reality.

(Focusing on improving recovery rates to say that we still have time to move in an orderly way to another organisation of our economy, not based on cheap energy anymore, is another point, but that's certainly NOT what the Economist is saying.)

They then focus on under-explored areas of the world, such as Russia, some of the Persian Gulf countries and ultra-deep offshore. They quote the head of exploration and production at Total, the French oil giant:

Total's Mr de Margerie points to frontiers that will be opened up by technology: “There may not be any more glamorous Ghawar fields, at least onshore, but there is tremendous opportunity if we look at ‘deep horizons'.” He believes that there are large deposits 10,000 metres (32,800 feet) or more underground. The snag is that they are usually under very high pressure or very hot, and may be extremely acidic. But as technology improves, he thinks, “these very strange hydrocarbons” will become economic.

It is ironic in that Total is the only one of the big oil majors to have acknowledged peak oil and to have actually put a date on it - around 2025 (see a comment I wrote on Kevin Drum's blog last June about it) - and they are also one of the few to have made more actual discoveries than they produce. So Mr de Margerie is essentially saying that all the technology that they are using or expect to use will be useful for another 20 years or so at most (the Economist quotes him only as saying: “The peak will come, but we can keep the plateau for a long time with technology.”

Of course, the problem is that a plateau is not good enough at times of growing demand, and it does not negate the concept of peak oil.

The Economist goes on to discuss who controls the technology that will allow to exploit more reserves, and makes the more interesting point that a lot of that technology is not controlled directly by the oil majors themselves, but by the oil serivce companies liike Schlumberger and Halliburton:

That points to the most explosive criticism levelled at the oil majors: that they no longer have the capacity to innovate. A few decades ago these firms were fiercely proud of their proprietary technologies, which they believed gave them a competitive edge. But during the 1990s most majors slashed funding in this area, leaving service firms such as Schlumberger and Halliburton to pick up the slack.

“Ten-dollar oil killed upstream research,” says one executive. Ivo Bozon of McKinsey, a consultancy, reckons that the majors slashed upstream R&D spending from $3 billion in 1990 to below $2 billion in 2000 (both in current dollars). Over the same period, the service companies increased their investment in research from $1.1 billion to $1.7 billion. The sharpest cuts, adds Mr Bozon, were made by American companies.

“These guys need to explore, but they don't know how to do it any more,” complains Roice Nelson of Geokinetics, which makes reservoir visualisation software for the oil industry. Mr Nelson helped found Landmark Graphics, an industry pioneer in imaging software, so his criticism stings. He notes that the industry sacked many of its best-qualified technical staff, and that relatively few college students now are going into petroleum engineering. “We'll be working till we're past 80,” he sighs.

The majors now realise that this shift away from technology, once their core strength, was a mistake that has benefited three groups of rivals: the service companies, the “mini-majors”, and the NOCs. Mr Lesar at Halliburton is delighted: “There's been a fundamental shift in ownership and development of technology from the majors to the service companies.” The problem is that the service companies are less capable of investing for the long term, because their balance sheets tend to be weaker than the majors'. Moreover, they need their customers to adopt those technologies to make them commercially viable—but the majors have proved gun-shy.

So, a Halliburton conspiracy to keep everybody happy? Probably not (as I wrote elsewhere, Halliburton et. al. make more money from governments than from big oil), but it does point yet again to the unwillingness and/or unability of big oil to invest. This time, it was the focus on their short term balance sheet which can be blamed. This is a more general lesson (which the Economist does not really make, celebrating instead the "independents" that take more risks and supposedly fill the gap: quarterly results make companies risk adverse and makes them limit their investments.

Again, the Economist provides some valuable perspective for the short and medium term management of the big oil companies, but provides really a really rosy vision of the long term, based on the firm belief that technology and good ol' American entrepreneurship will solve the problem.

6. Consider the alternatives

In the last section, the Economist tries to mix all issues to find a conclusion. It provides contradictory insights:

- oil use has been pretty much narrowed down to transportation in the West, but that has made that sector even more vulnerable to oil prices, not less;

- government intervention in the oil sector works (gasp! The Economist is usually like the WSJ Op-Ed pages on that topic): CAFE standards worked, pollution requirements have worked, urban planning would work, and there is a strategic rationale for governments to intervene (dependency on potentially unreliable imports)

- they indirectly underline the difficulty to reduce petroleum demand with this Chinese example:

As soon as ordinary Chinese become wealthy enough to buy a car, they happily abandon public transport. Shanghai's economic boom has been accompanied by an annual rise of 15% in the number of cars in the past few years, which explains the city's miserable traffic and smog. Officials have tried to curb this by introducing an auction system for new car permits, but have been taken aback by the demand. The price of new permits has shot up past $5,000 per car and is still rising.

In short, public transport is vitally important, but it will never dislodge the car. For the world's aspiring billions, it is the ultimate symbol of status and freedom, even if it perpetuates mankind's addiction to oil.

People are willing to pay a lot to drive, so they must be forced to pay A LOT MORE not to drive is the unstated conclusion...

The Economists then cursorily examines alternative fuels, such as biofuels (polluting and a poor or negative EROEI) and GTL (gas-to-liquids, gasoline manufactured from natural gas) and ends up with an ode to the fuel cell, and to GM's efforts in promoting it.


Strangely, they conclude by publishing this graph from Exxon which shows that alternatives will not amount to much, and yet concluding as follows:

Even the most powerful man in the oil patch, Saudi Arabia's Mr Naimi, seems to acknowledge that his world is changing. Five years ago, when asked about the prospects for hydrogen, he immediately replied: “Hydrocarbons will remain the fuel of choice for the 21st century.” Asked the same question again recently, he reflected before replying. He had been surprised by the size of the investment the global car industry is making in fuel cells, and he was concerned about efforts to tackle climate change, which he believed would hurt oil. Most revealingly, he said that his country was now looking into carbon-sequestration technologies. Eventually he got back to the question: “Oil will still dominate for the next 30-50 years, because there are no meaningful substitutes.”

Old lags in the industry have long quipped: “The stone age did not end for lack of stone, and the oil age will end long before the world runs out of oil.” Nowadays that sounds less like a joke and more like a forecast.

(yeah, that's their actual final words)

So basically: don't worry, be happy, the big companies will save the day with new technology, so we won't need more oil, but there is enough oil anyway should we need it...

It's pretty disappointing, but not surprising really. As a part of the Establishment, The Economist plays a role in setting the meme for the global corporate elite. This is clearly a very professional, interesting "don't rock the boat" piece. will it be overtaken by facts quickly or will it help perpetuate out countries noxious blindness on the topic of energy?

If you think this is too severe, a final note: the only time the issue of conservation is raised, it is to bring up Dick Cheney's sentence: "Conservation may be a sign of personal virtue, but it is not a sufficient basis, all by itself, for a sound, comprehensive energy policy."

I'll do one more diary on their article on the energy bill, which is actually a lot more critical, but overall, it's still disappointing.

Remember where the oil goes:

Posted by Jérôme à Paris on May 1, 2005 at 03:03 PM | Permalink


OMG. That picture of the woman with the humvee is iconic about all that is wrong in this country.

It makes me want to vomit.

It should be the companion photo to the little girl screaming at the blood on her hands because her parents were shot at a checkpoint in front of her eyes.

Posted by: fauxreal | May 1, 2005 3:15:35 PM | 1

Tony Blair is a liar and a war criminal.

Posted by: Friendly Fire | May 1, 2005 5:04:11 PM | 2

There's a priceless quote from that Bageant article on the Olduvai theory. Whether apocryphally or not, he quotes "a friend" as saying, Just watching Americans consume things gives me a headache. My feelings, ever-more-exactly with each passing day.

Posted by: DeAnander | May 1, 2005 7:34:34 PM | 3

The promulgation of "infinite substitution" dogma continues in the popular US press as well as in the Economist. I think I should start calling it "transsubstantiation" as it appears to be more of a miracle-cult than a real technology prospect :-)>Gas Prices Put Ethanol in Spotlight -- article forwarded to me by a carfree friend, who remarks:

This propaganda piece appeared in our paper yesterday. The reporter is our "car guy" but it was run as front-page news story. Not mentioned in the article is the fact that E85 (85% ethanol, 15% gasoline) only contains 73% of the energy as a gallon of gasoline. Mentioned only in the sidebar: "Facts about E85...What are the downsides?...miles per gallon may be reduced slightly". Slightly? I would say they would be reduced 27% and that's not slightly! So at the prices given, the E85 is more expensive.

NO mention of EROEI (Energy return on energy invested) of ethanol.

One thing has me puzzled: there is a claim that the E85 somehow emits less CO2 -- I assume the crux of this is that the feedstock, corn, absorbs CO2 while growing, how does that sound?

The article vaguely mentions subsides for ethanol production. But one thing i couldn't figure out from some quick googling; is the E85 exempt from road tax?... I would bet it is but I couldn't verify that. Road tax in AZ is .37/gallon of gasoline.

Another thing i found out googling around is that the manufacturers get a CAFE break just for producing these FFV (Flexible Fueled Vehicle -- a vehicle that can run either on gas or E85). This is from the -- biting my tongue -- Green Car Journal online: "Manufacturers can receive a credit of up to 1.2 miles-per-gallon for each FFV produced that can be applied toward meeting their Corporate Average Fuel Economy (CAFE) requirements". This would probably explain why FFVs "are mostly trucks and SUVs". Either that or auto-makers deep feelings for doing the right thing, take your pick.

The ethanol-fuel propaganda mill in the US is afaik mostly the child of the corporate corn farming lobby. I believe the cultivars they grow for corn syrup extraction are also suitable (due to high sugar content) for ethanol production -- will have to talk to farming friends to verify -- and given the growing backlash against super-sweetened foods there may be a diminishing market for the corn syrup feedstock. Just guessing.

Ethanol production would be an alternative market for the non-food-grade feedstock corn, with the added cachet of "doing something Green" and "patriotically freeing America from foreign oil dependence." It's a catchy meme for the Heartland -- "corn" is one of those all-American memes, you know, "wholesome as an Iowa corn field" [roamed by dirt-compacting mega-tractors and mega-harvesters, planted in regimented rows of monocrop gene-spliced GMO cultivars, saturated with glyphosate, "fertilised" with nat-gas derivatives, vulnerable to fusarium blight, steadily turning what was once good soil into hardpan -- but never mind the reality, it's the meme that counts] -- I can just see the splashy magazine ad with the apple-cheeked farm kid holding up a gloriously golden ear of corn next to a shiny SUV: The All-American Fuel for the All-American Car!

Corporate corn is, iirc, a highly fossil-intensive crop, so I would bet the EROEI is solidly net-negative. Will try to find out something about that too. But in the meantime, the public gets fed these glib feel-good stories.

Posted by: DeAnander | May 1, 2005 8:13:52 PM | 4

I have heard that the calculations for energy costs of ethanol may be a little off and ethanol may actually be a little energy positive. Good article here citing both arguements. Besides, we could always find bioengineered ways to cut some of the energy involved-Found this:

Green Car Congress: Biotech Boost to Ethanol Production
"Biotech Boost to Ethanol Production

Broin Companies has announced a new patent-pending ethanol production process that reportedly eliminates a costly energy-consuming step in the usual process while increasing the efficiency of the conversion.

The “Broin Project X” (BPX) process releases additional starch content for conversion to ethanol, increases protein content and quality of byproducts, potentially increasing plant throughput while significantly decreasing plant emissions."

There's always using waste cooking oil or hemp to make biodiesel.

There's also an article in an old New Scientist that suggests it's more energy efficient to burn garbage than to recycle it...Burn this magazine

Posted by: doug r | May 1, 2005 11:08:06 PM | 5

I've been reading The Economist article the old fashioned way - a page at a time while sitting on the toilet - and one item leapt out at me, that price would make more oil recoverable. This is somewhat misleading. Much of the oil will remain unrecovered because it takes more energy to extract the oil than one can derive from it. Could there be a market for a solar powered pump to force the oil out of its home? Could, in the irony of ironies, the oil companies provide a breakthrough in solar generated ergs?

The Economist is a wonderful magazine, one of the few to actually cover the whole world, as well as arts and science, and do it admirably. One does, however, need to realize from what perspective it reports. It's often well-reasoned and certain, yet incorrect in its predictions, lacking in a view that extends beyond the corporate world or the horizon.

I'm reminded of an apt definition of an economist - a person who can, with remarkably precise mathematical models, explain today exactly why he was wrong yesterday.

Posted by: cavanaghjam | May 2, 2005 2:39:48 AM | 6

The unexpected consequence of higher oil prices is the wastedful land use and transport policies both public and private is highlighted.At what price does ever expanding exurbs become unattractive?At what price do massive one story distribution centers located 10,20,or even 30 or more miles from the Central Business District become uneconomic?...The massive underlying subsidies that perpetuate these wasteful policies will have to be reexamined

Posted by: DEEPGHETTO | May 2, 2005 2:41:26 AM | 7

Could there be a market for a solar powered pump to force the oil out of its home? Could, in the irony of ironies, the oil companies provide a breakthrough in solar generated ergs?


Saudi ARAMCO operates a number of oil production platforms in the Persian Gulf and many of these platforms have no electrical power beyond a few solar modules for communications and navigational aids. One of the major operating expenses for these platforms is the need to replace corroded well casings every 5-8 years. Studies by ARAMCO have shown that the frequency of this work could be dramatically reduced through the use of impressed-current cathodic protection. After looking at a number of alternatives to supplying the electricity for such a system, ARAMCO concluded that wind power was a least-cost approach.

Posted by: Cranky Bastard | May 2, 2005 9:46:31 AM | 8

Roscoe Bartlett, a conservative Republican congressman from Maryland, is trying to raise concerns about Peak Oil. Transcript here.

Some excerpts:

DR: To what extent do you think oil peak should be a driving force in U.S. policy?

RB: I think it needs to drive, essentially, all of our policy....


DR: You mentioned M. King Hubbert—many people don’t know that later in his life he said that the science of energy and matter was incompatible with our exponential growth culture and, in particular, on debt-based monetary system. Any comments on that?

RB: I just spent about a half an hour today, maybe more than a half hour, talking with Colin Campbell from England. He was mentioning the banking economic implications of peak oil. We have been really growing the cash fund. Very much faster than it should grow, and that’s okay because it will be covered by growth tomorrow. What the banks do, of course, is loan out that money six or seven times. You can’t continue to do that if you don’t have continued growth. In a real way, our financial system is pegged on obligatory growth. If we don’t have obligatory growth, who knows what will happen to this financial system.


If we’re going to get through this crisis period without an awful lot of pain, we’re going to have to have the equivalent of a Manhattan-like Project. We’re going to have to challenge, not just the American people, but the people of the world because the first thing we have to do is to have an enormously conservation effort so that we buy time.


Now people note that we have probably peaked out in oil but very few people make the connection between that and the consequences of peaking out—where we have a somewhat constant but slowly diminishing supply of oil with a big increase in demand for oil. What will that do? It’s driven oil prices up to over $50 a barrel. But what will it do in terms of geopolitical stabilities? What will China do to assure that they have oil? What will we do when we recognize? One person in 22 in the world and we use a fourth of the world’s oil. We’re not now loved around the world, but when the world finally wakes up to the fact that for all these years we have been peaking oil like there was no end to it. This one person in 22 has used 25% of all the world’s oil; denying other countries the opportunity to do what we’ve done and industrialize to improve the quality of life for their people. Who knows the geopolitical consequences of that recognition? (He mentions elsewhere that China is building a large navy to ensure - i.e., fight for - their share of oil.)


By the way, we need a new yardstick to judge success by. Right now, success is judged by how much energy is used. Think about it, the person who is successful has a really big car; they take really expensive vacations; they have a really big house. Now we have got to have another yardstick by which we measure success because success can’t continue to be measured by how much energy we use, do you think?

DR: I think you’re absolutely right. It’s sounds like what Hubbert was talking about when he said the ‘exponential growth culture’.

RB: We just think it’s forever. We think that God gave us the right to this quality of life, to use all of this. I have friends who really believe that the marketplace is really going to take care of this, they really believe this.


DR: Let me ask you this, because I know we’re getting towards the end of the interview, what recommendations do you have for municipal leaders with respect to peak oil and perhaps developing a contingency plan?

RB: I think the information that one writer gives to individuals is also good for communities. Get off the grid. Make yourselves as energy independent as possible. They can do with wind machines and solar and so forth, with distributed power production, lots of opportunities to do that. Then he says, get out of debt. If we come to some financial crisis, our municipalities as well as people will fare a whole lot better if they aren’t carrying a big debt. Make the investments…conservation, efficiency…We’re really good at efficiency.

DR: ...What I’m wondering is—what do you think about rebuilding local economy so that we make much more of the things that we need locally?


Much of the world needs to do what the Russians have been doing. They just don’t trust the system, so everybody rich or poor has a dacha. If you’re a poor man it’s a little larger than an outhouse but at least contains your garden tools. Every year they make a garden. Since they don’t trust the system they have the food there for them. They store it. They put it in root cellars. They pickle it. They can it. They don’t freeze it. You may not have electricity, that’s not a good way to store food for the long haul. We need to start going that in this country. The old Victory Gardens, remember the old Victory Gardens? You’re too young to remember that. In World War II, everyone had a Victory Garden. It was very patriotic and everybody enjoyed going that. It was a kind of competition—who could have the most productive, most attractive victory garden.

There is more in the interview, much of it mirroring the concerns of many knowledgeable posters here and some discussion of the level of ignorance about this topic that among our so-called leaders. The new element for me was his connecting Peak Oil to our financial system. (Any thoughts on that, Jerome?) It is encouraging to see a member of Congress of any persuasion address this issue with conviction; the fact that he is a conservative Republican will make it harder for our corporate media to dismiss him as a left wing flake. I hope other responsible conservatives and progressives will support him on this.

BTW, Jerome, thanks for another great post. I'm impressed with the volume and quality of your essays. Very helpful to me, and others I'm sure.

Posted by: lonesomeG | May 2, 2005 12:22:08 PM | 9>Please allow me to correct the Bartlett transcript URL

Thanks LG -- interesting! and he's a Repub, too! An illustration of how the old political divides may be crumbling, to be replaced by a new divide -- Pragmatists vs Cornucopians? Usurers vs Agrarians?

Posted by: DeAnander | May 2, 2005 2:03:39 PM | 10

Excellent discussion Jerome.

It has always confounded me that folks (includiing people and corporations) consume and burn whatever they can get their hands on as if there were no tomorrow. And now that we are perhaps reaching that point, predicted since at least fifty years ago, where the end is in sight, most of the emphasis is on how to get MORE.

Using less is really easy you know. It is simply in the interest of cash flow/profits that consumption increase.

In my simplistic and uncluttered (radical lefty) view, a tax on hydrocarbon consumption which is then invested in alternative energy and improved efficiency would help a lot. Tax the gas hogs at $20K per year, for example, and give a big break to the Isettas of the world. (Isetta was and may still be a teeny-weeny Italian three-wheeler.) Home heating oil and gas can be similarly taxed.

A necessary first step of course is to eliminate corporate control of govt, which is in the near term impossible.

(OT but fun)-- You may have seen the latest from our White House insider, who has checked the public record against those all-nighters spent in the WH by Gannon/Guckert. I seems the only person who was present each time in addition to the Talon News reporter was...GWB.

Reportedly, a security surveillance tape has gone missing, perhaps only for blackmail purposes, and Guckert has let on that he plans to publish his private diaries through a Russian firm.

There is a feeling around Washington that something might hit the fan soon.

Posted by: rapt | May 2, 2005 4:04:12 PM | 11

supposing for a moment that Gannon/Guckert has been Dubya's fancy man for the last year or two -- that the BushCo political machine would be insane enough to let that happen -- and if he has photos and/or receipts or other doco -- this would indeed be kinda hard to sweep under the rug. the only respectable solution would be for the Rethugs to reverse their position on gay marriage instanter, and make Jeff an honest man :-) "Ladies and Gentlemen, President Bush and First... er... Escort Jeff Gannon-Guckert-Bush..." they'd make a cute couple: Commander Codpiece and Journo Jockstrap, together at last. kind of a perfect wedding-cake topper for the same Amurka that wanted Ahnold for Governator :-)

but if Jeff has such substantiating evidence and is ready to talk, imho he now has the approximate life expectancy of a snowflake on a hot griddle... so I'm not holding my breath for any really damaging revelations. if he really had anything to tell, surely he'd be on one of those flights to some Uzbek oubliette by now. nice fantasy Rapt, but I can't see the Rovester and the rest of the apparatchiks letting that happen.

Posted by: DeAnander | May 2, 2005 4:16:03 PM | 12

"uzbek oubliette"


Posted by: slothrop | May 2, 2005 4:35:42 PM | 13

I have felt for quite a while now that the main force keeping the Dub in office (and alive) has been his mama Barb.

The String-pullers have few fears that can't be addressed by a well-placed airplane wreck, but Barb is a special case; cross her at your own peril.

But what happens when the boy whose arrogance knows no bounds, continues to make an utter fool of himself? There are limits to what public-image-manufacuring can do, and I think Rummy and Dick are getting way tired of the cramps it puts on their style.

Posted by: rapt | May 2, 2005 4:38:14 PM | 14

Is that why Laura is a "desperate housewife"? This one made the rounds on TV over here...

Posted by: Jérôme | May 2, 2005 6:14:00 PM | 15

Oil Surges as OPEC Minister Forecasts 4th Quarter Demand Growth

May 2 (Bloomberg) -- Crude oil rose more than $1 a barrel in New York after Algeria's energy minister Chakib Khelil said that global fuel demand remains ``very strong.''

Supply may not be sufficient to meet demand in the fourth quarter, which is when consumption peaks, Khelil said in an interview in Washington. The producer group has between 1 and 2 million barrels a day of spare production capacity and would need perhaps 4 million to provide a cushion that would keep prices in check, Khelil said.

``With OPEC close to capacity it is hard to see how they can increase production when it's needed,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago. ``If there is any disruption we will see prices soar.''

Posted by: Greco | May 2, 2005 8:35:37 PM | 16

Jérôme, maybe I should have posted the windmill thing here - well, here is the link

Posted by: Fran | May 3, 2005 1:13:42 AM | 17

Thanks, Cranky Bastard, for above post.

Posted by: cavanaghjam | May 3, 2005 3:30:36 AM | 18

Fran - I have recently financed a wind farm in La Muela. I hope to visit it later this year...

It is a great way to bring economic benefits (money and some jobs) to otherwise stagnant or isolated regions. In many places, it has also proven to be a tourist attraction.

Posted by: Jérôme | May 3, 2005 3:38:56 AM | 19

'US invasion of Iraq was a resource war'

Cape Town - With the rapid decline of global oil supplies, the United States is heading for an economic crash unlike anything since the 1930s. And the collapse of the dollar will affect every nation on earth.

This is the chilling warning from academic Richard Heinberg of the New College of California. Heinberg is in Cape Town, South Africa, this week to share his views on what governments and societies need to do to mitigate the imminent global crisis after world oil production peaks.

"It's too late to maintain a 'business as usual' attitude. What is required is to manage the change that peak oil will bring in a way that causes the fewest casualties. This must be done at an economic and geopolitical level, to fend off resource wars. The US invasion of Iraq is clearly a resource war," Heinberg said on Monday.

Global oil discovery peaked in the 1960s and oil production is likely to peak as soon as 2007. With a world economy based on fossil fuel, the economic and social consequences will be dire.

In his most recent book, Power Down: options and actions for a post-carbon world, Heinberg describes the options available to avoid catastrophe.

Wearing a T-shirt that read: "Wake up! You are here," with an arrow pointing to a graph of a peak in oil production, Heinberg said world governments were aware of the pending crisis. The United States department of energy had commissioned a report on the probable impacts of "peak oil", the point at which global oil production will no longer meet demand, which was released in February.

"The report was compiled mainly by ex-CIA people. The CIA has always kept a close watch on resources. They found that peak oil would provide the US and the world with an 'unprecedented risk and management problem'.

"They say if they have 10 years to prepare, the economic and social chaos could be minimised. But if it's less, the US will face a serious problem and the government will have to manage it without public input. For that, read martial law. The report found oil price volatility will increase to unprecedented levels," Heinberg said.

The US response is not to cut oil consumption by making major lifestyle changes, and scale back on economic activity, but to use the military to maintain control over oil in the Middle East.

"The long-range plan is for the West to control the Middle East by the military so it can control the price of oil."

This was formalised as far back as 1979 by former US president Jimmy Carter, in what became known as the Carter Doctrine, which stated that America would use the military to maintain access to the oil reserves in the Middle East.

Clearly we need to find substitutes for oil, says Heinberg, but the available energy alternatives are not reassuring.

Natural gas extraction will peak a few years after oil, extraction rates for coal will peak in decades, nuclear energy is dogged by unresolved problems of waste disposal and solar and wind energy will have to undergo rapid expansion if they are to replace even a fraction of the energy shortfall from oil. And the enthusiasm about a hydrogen economy comes from politics rather than science, he said.

"Our real problem is that we are trapped in a perpetual growth machine. As long as modern societies need economic growth to stave off collapse (given existing debt-and-interest-based national currencies), we will continue to require ever more resources yearly. But the Earth has limited resources.

"The energy conundrum is thus intimately tied to the fact that we anticipate perpetual growth within a finite system," Heinberg said.

He sketches four main options available in response:

Following the US leadership in competing for remaining resources through wars;

Wishful thinking that the market or science will come to the rescue;

Assuming that we are already in the early stages of disintegration, devoting our energies to preserving the most worthwhile cultural achievements of the past few centuries.

"Powering down" - reducing energy resource use drastically through economic sacrifice, reducing the population size and developing alternative energy sources.

"The sooner we choose wisely, the better off we and our descendants will be," Heinberg said.

Posted by: Cloned Poster | May 3, 2005 6:04:43 AM | 20

Jérôme, must be a satisfying feeling to read about this good outcome of your (and I guess your banks) effort and work. Hope you can get involved in more projects like this.

Posted by: Fran | May 3, 2005 10:12:29 AM | 21


"You can’t continue to do that if you don’t have continued growth. In a real way, our financial system is pegged on obligatory growth. If we don’t have obligatory growth, who knows what will happen to this financial system."


"The energy conundrum is thus intimately tied to the fact that we anticipate perpetual growth within a finite system."

Edward Abbey:

"Limitless growth is the ideology of a cancer cell."

Posted by: Billmon | May 3, 2005 11:31:25 AM | 22

The Economist piece does a little sleight of hand, as peak oil is an open secret.

1) It writes *as if* oil itself was somehow an inexhaustible resource, conjured up out of top hats. The present price is due to correctable glitches (under investment, refining capacity, tech. wizards in the wrong place, etc.), and technology will eventually ‘boost production’ or whatever. This is the usual cheerful folderol; the only thing interesting about it is: Who do they think they are fooling and why are they doing it? Most likely the answer to this question is just the usual - there are people in the know, and belonging to that group confers advantages as long as the knowledge is not shared.

2) The titles (and a few other words here and there) give the real message: *Bottomless Bear Mug* - *Have your cake and eat it too.* What could be clearer?

Titles (especially in journals that use or allow ‘catchy’ or ‘jokey’ titles) are often used to signal a ‘true’ (secret, tongue in cheek, discordant, etc.) message. It is known that people don’t hunt for the link between the title and the content; they either get it instantly or don't. Titles are ‘safe’ - far safer than one can imagine. Legends to pictures are safe too, as are graphs - typically the Economist publishes a reasonable graph (renewables are minimal) but contradicts or obfuscates those facts in the text.

One can question the ‘reality’ of ‘Peak Oil’; however if one does so, one has to invoke reasons other than those mentioned in the Economist article.

Such as that given by my little son who once complained:

Mama he stole it from me jess cos he don’t want ME to have it!

Posted by: Blackie | May 4, 2005 5:55:45 AM | 23

IEA chief issues energy investment warning

Investment in new capacity by oil-producing nations and energy companies is too small to meet future growth in demand, the developed world's energy watchdog warned on Tuesday.
BP and ExxonMobil, the two biggest listed oil groups, say that when making investments that may last for 25 years they will assume only a $20 per barrel. Exxon has lifted its spending range from $14bn-$15bn to $15bn-$16bn this year, but much of the extra money will go to its chemicals business. BP is keeping spending at about $14bn. Both companies, which insist they have plenty of investment opportunities even when using tighter guidelines, give shareholders most of the extra profits from high oil prices. Exxon bought back almost $10bn of its shares last year and BP returned $7.5bn, plus $2bn in the first three months of 2005.

Posted by: b | May 4, 2005 7:33:40 AM | 24

Libertarians are so desperate to believe in their particular ideological fairy-tale that they've recently begun latching onto the ludicrous notion of "Abiotic Oil", which basically claims that petroleum is a renewable resource. Bookmark this link in case you're ever on forum where someone living in Ayn-Rand fantasy-land throws that myth into your face.

Posted by: Loveandlight | May 5, 2005 1:24:55 AM | 25

Titles (especially in journals that use or allow ‘catchy’ or ‘jokey’ titles) are often used to signal a ‘true’ (secret, tongue in cheek, discordant, etc.) message.

Look out, a Straussian! [just kidding, just kidding]

Posted by: DeAnander | May 5, 2005 1:27:48 AM | 26

I've been waiting for this to happen. England seems to be ahead of the curve, or have better press than the rest of us. Rooftop WindMills

Posted by: jj | May 5, 2005 4:25:29 AM | 27


Dig a bit deeper - before you guffaw abiotic oil.

I did see a Black Sabbath concert (about 1972 I think, in New Zealand of all places). I thought they were crap.

Posted by: DM | May 5, 2005 6:09:26 AM | 28

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