Peak Oil: Looking for the Wrong Symptoms?

[jk]

Re: Peak Oil: Looking for the Wrong Symptoms?

dmitry orlov suggests that the post-peak scenario is more dire, comparing the economic collapse of the fsu after its oil production peaked

Note how just around the time of the collapse oil production goes into free-fall, which is only arrested in mid-1990s. Had the Former Soviet Union remained economically isolated, the free-fall would have continued. Kolodziej and Reynolds drew some interesting conclusions based on these data. Firstly, the crash in oil production preceded collapse in USSR's Gross Domestic Product. The lag time between the two, and the severity of the collapse are clear enough to ascribe causality: to say that the oil crash caused the economic collapse. On the other hand, coal and natural gas production, which also crashed, did so after the GDP collapsed, again, with a significant enough lag time to say with confidence that it was economic collapse that caused coal and gas production to crash.

What actually happens to an economy and a society under such circumstances? With oil in short supply, industrial production plummets, the economy stalls, there is a financial crisis because of debts going bad, followed by a commercial crisis because of falling demand and lack of credit, followed by political collapse caused by dwindling government revenues, followed by social collapse as unemployment rises and crime becomes rampant. After a while of this, the idea of you and your friends going out to the oil field and pumping some more oil starts to seem rather odd, and so oil production heads to zero.

The global oil peak is different from all the little localized peaks in that the planet as a whole cannot import its way out of an oil shortage, resulting in a global economic collapse. The economic collapse will, in turn, cause global oil production to crash even faster, extinguishing the industrial economy.

unless, of course, we are bailed out by aliens:


details here: http://cluborlov.blogspot.com/2009/0...sfunction.html

[Rajiv]

Re: Peak Oil: Looking for the Wrong Symptoms?

The Russian Oil Production graph is interesting to me as I look at it to see two peaks for oil production. It appears to me that the first peak may have been directly responsible for Russia's withdrawal from Afghanistan, as it was directly competing for state resources. That resulted in the second peak, but of course using old technology, increase in oil production was not feasible.

After that, I buy Orlov's logic.

[friendly_jacek]

Re: Peak Oil: Looking for the Wrong Symptoms?

One interesting aspect of the Russian oil production chart is production going up since 2000.
Why would that be?

BTW, Orlov makes sense to me too.

[GRG55]

Re: Peak Oil: Looking for the Wrong Symptoms?

One interesting aspect of the Russian oil production chart is production going up since 2000.
Why would that be?...

This is almost entirely due to the "privatization" of the Russian industry during the Yeltsin Presidency in the 1990s, when the best of the State owned resource sector assets ended up in the hands of a few favoured oilgarchs at tiny fractions of their real value...some are prominent like Oleg Deripaska [Rusal], Mikhail Khodorkovsky [Yukos], Roman Abramovich & Boris Berezovsky [Sibneft], and some are almost unknown like Sergey Popov & Andrey Melnichenko [owners of Russia's largest coal producer Suek] and Vagit Alekperov & Leonid Fedun [Lukoil] . All are now multi-billionaires, with the exception of Khodorkovsky, who is languishing in a Russian jail cell.

The "privatization" opened the door to a flood of money entering the Russian resource sector, much of it raised and funneled through the London markets where the brokers and bankers were falling all over themselves to cash in on the "Russia story". A good deal of investment was also coming directly from western partner companies. For example, ConocoPhillips bought 20% of Russian oil company Lukoil, BP is a partner in TNK, Shell and Exxon took major stakes in the Sakalin projects at that time and there's a host of other, similar, examples.

When this tidal wave of money hit the enormous, but chronically underexploited State-owned Russian asset base, the result was predictable. Production and exports of everything from oil to coal, nickel, gold and most other raw materials started to rise as massive new development projects and mines came on-line this decade.

That's all over now. Under Putin a new policy of resource nationalism has taken hold. Formerly privatized assets are now back under State control. For example Russia's Gazprom once again controls Sibneft, and Yukos assets ended up in Rosneft and Gazpromneft [a division of Gazprom]. The Russian government forced both Shell and Exxon to sell down a portion of their ownership in Sakalin, also to Gazprom, and forced BP to reduce its interest in the Kovytka assets. The private Russian oligarchs have been displaced and these companies and assets are now under the direction of the salovikis.

Energy, and companies like Gazprom, is now an integral part of the foreign policy of the Russian government - witness the repeated gas supply disputes with Europe and the maneuverings over gas sourcing and new pipelines. Foreign companies and investment is still active in Russia, but the new legal frameworks require most resources and assets to be under the majority control of Russia. We should expect that the pace of future resource development in Russia will depend more on political considerations than anything else...

[raja]

Re: Peak Oil: Looking for the Wrong Symptoms?

dmitry orlov suggests that the post-peak scenario is more dire, comparing the economic collapse of the fsu after its oil production peaked

The economic collapse will, in turn, cause global oil production to crash even faster, extinguishing the industrial economy.

Demand destruction resulting in lower oil prices. (Seems like I've read that somewhere before )
I wouldn't want to be invested in oil if Orlov's prediction comes true. "Extinguishing the industrial economy" -- that's harsh. :eek:

On the other hand, if the collapse is less dramatic, and things ratchet down in a more gradual way, then oil prices would oscillate up and down, while all the while moving higher. The two opposing forces would be demand destruction lowering the price vs. shortages raising the price. It would go like this:

Less oil available > price goes up > demand goes down > more oil available > price goes down > demand goes up > less oil available. Repeat . . . . .

In the event that there is no catastrophic "extinguishing of the industrial economy", I suspect that the price of oil would gradually go up over time, in which case it would be good to be invested in oil long term.
But who knows?

[friendly_jacek]

Re: Peak Oil: Looking for the Wrong Symptoms?

This is almost entirely due to the "privatization" of the Russian industry during the Yeltsin Presidency in the 1990s, when the best of the State owned resource sector assets ended up in the hands of a few favoured oilgarchs at tiny fractions of their real value...some are prominent like Oleg Deripaska [Rusal], Mikhail Khodorkovsky [Yukos], Roman Abramovich & Boris Berezovsky [Sibneft], and some are almost unknown like Sergey Popov & Andrey Melnichenko [owners of Russia's largest coal producer Suek] and Vagit Alekperov & Leonid Fedun [Lukoil] . All are now multi-billionaires, with the exception of Khodorkovsky, who is languishing in a Russian jail cell.

The "privatization" opened the door to a flood of money entering the Russian resource sector, much of it raised and funneled through the London markets where the brokers and bankers were falling all over themselves to cash in on the "Russia story". A good deal of investment was also coming directly from western partner companies. For example, ConocoPhillips bought 20% of Russian oil company Lukoil, BP is a partner in TNK, Shell and Exxon took major stakes in the Sakalin projects at that time and there's a host of other, similar, examples.

When this tidal wave of money hit the enormous, but chronically underexploited State-owned Russian asset base, the result was predictable. Production and exports of everything from oil to coal, nickel, gold and most other raw materials started to rise as massive new development projects and mines came on-line this decade.

That's all over now. Under Putin a new policy of resource nationalism has taken hold. Formerly privatized assets are now back under State control. For example Russia's Gazprom once again controls Sibneft, and Yukos assets ended up in Rosneft and Gazpromneft [a division of Gazprom]. The Russian government forced both Shell and Exxon to sell down a portion of their ownership in Sakalin, also to Gazprom, and forced BP to reduce its interest in the Kovytka assets. The private Russian oligarchs have been displaced and these companies and assets are now under the direction of the salovikis.

Energy, and companies like Gazprom, is now an integral part of the foreign policy of the Russian government - witness the repeated gas supply disputes with Europe and the maneuverings over gas sourcing and new pipelines. Foreign companies and investment is still active in Russia, but the new legal frameworks require most resources and assets to be under the majority control of Russia. We should expect that the pace of future resource development in Russia will depend more on political considerations than anything else...

Good explanation, thanks!

[friendly_jacek]

Re: Peak Oil: Looking for the Wrong Symptoms?

On the other hand, if the collapse is less dramatic, and things ratchet down in a more gradual way, then oil prices would oscillate up and down, while all the while moving higher. The two opposing forces would be demand destruction lowering the price vs. shortages raising the price. It would go like this:

Less oil available > price goes up > demand goes down > more oil available > price goes down > demand goes up > less oil available. Repeat . . . . .

I suspect the above will play out. I believe oil will oscillate somewhere in the 40-150 range (in today's dollars) as the 2004+ developments are showing. Or much more if hyperinflation ensues. Before Marc Faber started talking about hyperinflation, he put out a scenerio of series of deflations and inflations. That makes a lot of sense to me.

[GRG55]

Re: Peak Oil: Looking for the Wrong Symptoms?

This is almost entirely due to the "privatization" of the Russian industry during the Yeltsin Presidency in the 1990s, when the best of the State owned resource sector assets ended up in the hands of a few favoured oilgarchs at tiny fractions of their real value...some are prominent like Oleg Deripaska [Rusal], Mikhail Khodorkovsky [Yukos], Roman Abramovich & Boris Berezovsky [Sibneft], and some are almost unknown like Sergey Popov & Andrey Melnichenko [owners of Russia's largest coal producer Suek] and Vagit Alekperov & Leonid Fedun [Lukoil] . All are now multi-billionaires, with the exception of Khodorkovsky, who is languishing in a Russian jail cell.

The "privatization" opened the door to a flood of money entering the Russian resource sector, much of it raised and funneled through the London markets where the brokers and bankers were falling all over themselves to cash in on the "Russia story". A good deal of investment was also coming directly from western partner companies. For example, ConocoPhillips bought 20% of Russian oil company Lukoil, BP is a partner in TNK, Shell and Exxon took major stakes in the Sakalin projects at that time and there's a host of other, similar, examples.

When this tidal wave of money hit the enormous, but chronically underexploited State-owned Russian asset base, the result was predictable. Production and exports of everything from oil to coal, nickel, gold and most other raw materials started to rise as massive new development projects and mines came on-line this decade.

That's all over now. Under Putin a new policy of resource nationalism has taken hold. Formerly privatized assets are now back under State control. For example Russia's Gazprom once again controls Sibneft, and Yukos assets ended up in Rosneft and Gazpromneft [a division of Gazprom]. The Russian government forced both Shell and Exxon to sell down a portion of their ownership in Sakalin, also to Gazprom, and forced BP to reduce its interest in the Kovytka assets. The private Russian oligarchs have been displaced and these companies and assets are now under the direction of the salovikis.

Energy, and companies like Gazprom, is now an integral part of the foreign policy of the Russian government - witness the repeated gas supply disputes with Europe and the maneuverings over gas sourcing and new pipelines. Foreign companies and investment is still active in Russia, but the new legal frameworks require most resources and assets to be under the majority control of Russia. We should expect that the pace of future resource development in Russia will depend more on political considerations than anything else...

The great game continues.

From the Asia Times:

Feb 24, 2010

Russia threatens BP Kovykta assets
By Vladimir Socor

Russia's Natural Environment Inspectorate, RosPrirodNadzor, has recommended that BP's joint venture in Russia, TNK-BP, be stripped of the giant Kovykta natural gas project in eastern Siberia.

Located in eastern Siberia's Irkutsk oblast, the Kovykta field holds an estimated 2 trillion cubic meters of gas. RUSIA Petroleum is the license-holding company (technically the "mineral resource user") in the Kovykta project. TNK-BP owns a 63% stake in it. TNK-BP is a parity joint venture of British company BP with the Russian TNK (formerly Tyumen Neftegaz company), which is currently controlled by four Russian billionaire tycoons.

The Kremlin seems to be moving rapidly to tighten the noose around TNK-BP's asset, using the state's regulatory apparatus tothreaten with revocation of the license. In recent weeks, RosPrirodNadzor has stepped up its inspection of the project. It claims to have found "continuing violations" of license terms, with field development "persistently lagging".

Officially, the decision regarding the license is mainly up to Russia's Mineral Resources Oversight Service (RosNedra). In practice, there is little doubt that the decision will be a political one, ultimately to be made at the top of the government and in the Kremlin.

State oil company Rosneft has apparently developed ambitions to enter the natural gas business through a major project. Rosneft's subsidiary, Rosneftegaz, is expected to bid for a controlling stake in Kovykta.

On February 4, Aleksei Miller, chief executive of gas monopoly Gazprom, announced that the company does not need to include Kovykta's gas resources in Gazprom's export programs for China or other countries in the East Asia-Pacific region. On the following day, the natural resources ministry (to which RosPrirodNadzor is a subordinate agency) announced an "extraordinary" round of inspection of the Kovykta project. On February 12, Natural Resources Minister Yuri Trutnov warned that a decision to revoke the license might ensue within several weeks. In that case, the Kovykta field would be transferred into the legal category of "unallocated mineral reserves" (unlicensed fields)...

...Under pressure, TNK-BP agreed to sell its Kovykta stake to Gazprom for a sum in the range of US$700 million to $900 million, with an option to retain or regain a minority stake, subject to further negotiations. At that stage, Gazprom was trying to pressure BP into ceding a stake in BP's liquefied natural gas (LNG) project on Trinidad and Tobago. That project supplies the US market, which Gazprom was trying to enter.

The resolution was deferred in 2007-2008 by the Russian stakeholders' conflict with BP. Thanks to the Russian authorities' strong-arm measures, the TNK side evicted the joint venture's chief executive, Charles Dudley (an American citizen) from Russia in 2008, and forced changes on the joint venture's board in favor of the Russian side. Gazprom employee Gerhard Schroeder (formerly the German chancellor) was foisted on TNK-BP's board as an "independent" member. No sooner was the board coup accomplished than the financial crisis hit, further postponing a resolution of the Kovykta dispute.

At this stage, license revocation threatens not only BP, but also the Russian tycoon owners of TNK: an offer that TNK-BP cannot refuse. Apparently, Russian authorities are about to give all concerned an option to avoid license revocation and investment forfeiture, if they agree to sell the project to Rosneftegaz, or possibly another Russian company. Gazprom may well also be waiting in the wings, its disclaimer notwithstanding...

[jk]

Re: Peak Oil: Looking for the Wrong Symptoms?

The great game continues.

From the Asia Times:

Feb 24, 2010

Russia threatens BP Kovykta assets
By Vladimir Socor

Russia's Natural Environment Inspectorate, RosPrirodNadzor, has recommended that BP's joint venture in Russia, TNK-BP, be stripped of the giant Kovykta natural gas project in eastern Siberia.

Located in eastern Siberia's Irkutsk oblast, the Kovykta field holds an estimated 2 trillion cubic meters of gas. RUSIA Petroleum is the license-holding company (technically the "mineral resource user") in the Kovykta project. TNK-BP owns a 63% stake in it. TNK-BP is a parity joint venture of British company BP with the Russian TNK (formerly Tyumen Neftegaz company), which is currently controlled by four Russian billionaire tycoons.

The Kremlin seems to be moving rapidly to tighten the noose around TNK-BP's asset, using the state's regulatory apparatus tothreaten with revocation of the license. In recent weeks, RosPrirodNadzor has stepped up its inspection of the project. It claims to have found "continuing violations" of license terms, with field development "persistently lagging".

Officially, the decision regarding the license is mainly up to Russia's Mineral Resources Oversight Service (RosNedra). In practice, there is little doubt that the decision will be a political one, ultimately to be made at the top of the government and in the Kremlin.

State oil company Rosneft has apparently developed ambitions to enter the natural gas business through a major project. Rosneft's subsidiary, Rosneftegaz, is expected to bid for a controlling stake in Kovykta.

On February 4, Aleksei Miller, chief executive of gas monopoly Gazprom, announced that the company does not need to include Kovykta's gas resources in Gazprom's export programs for China or other countries in the East Asia-Pacific region. On the following day, the natural resources ministry (to which RosPrirodNadzor is a subordinate agency) announced an "extraordinary" round of inspection of the Kovykta project. On February 12, Natural Resources Minister Yuri Trutnov warned that a decision to revoke the license might ensue within several weeks. In that case, the Kovykta field would be transferred into the legal category of "unallocated mineral reserves" (unlicensed fields)...

...Under pressure, TNK-BP agreed to sell its Kovykta stake to Gazprom for a sum in the range of US$700 million to $900 million, with an option to retain or regain a minority stake, subject to further negotiations. At that stage, Gazprom was trying to pressure BP into ceding a stake in BP's liquefied natural gas (LNG) project on Trinidad and Tobago. That project supplies the US market, which Gazprom was trying to enter.

The resolution was deferred in 2007-2008 by the Russian stakeholders' conflict with BP. Thanks to the Russian authorities' strong-arm measures, the TNK side evicted the joint venture's chief executive, Charles Dudley (an American citizen) from Russia in 2008, and forced changes on the joint venture's board in favor of the Russian side. Gazprom employee Gerhard Schroeder (formerly the German chancellor) was foisted on TNK-BP's board as an "independent" member. No sooner was the board coup accomplished than the financial crisis hit, further postponing a resolution of the Kovykta dispute.

At this stage, license revocation threatens not only BP, but also the Russian tycoon owners of TNK: an offer that TNK-BP cannot refuse. Apparently, Russian authorities are about to give all concerned an option to avoid license revocation and investment forfeiture, if they agree to sell the project to Rosneftegaz, or possibly another Russian company. Gazprom may well also be waiting in the wings, its disclaimer notwithstanding...

grg,
since sakhalin and the similar expropriations, as you reference above, what has happened to new development and exploration? i would assume that all the western companies have pulled back on any new investment whatsoever. am i correct in this assumption? and have the russians replaced the now [presumed] ended western-funded exploration and development?

[GRG55]

Re: Peak Oil: Looking for the Wrong Symptoms?

grg,
since sakhalin and the similar expropriations, as you reference above, what has happened to new development and exploration? i would assume that all the western companies have pulled back on any new investment whatsoever. am i correct in this assumption? and have the russians replaced the now [presumed] ended western-funded exploration and development?

Initially foreign investment all but stopped on the fear of total expropriation - and that was across the board including mining and other resource sectors.

However, the oil industry is generally taking the position that cooperation is better than confrontation...and the Russian government has been fairly clear about its objectives, which actually helps the situation.

You'll recall, for example, Shell's deal with Gazprom last year...Shell swapped a long term assignment of its capacity in a Baja California LNG receiving terminal and pipeline in exchange for gas supply for its European gas network. Gazprom secured an entry into the USA natural gas market for Sakalin LNG and Shell diversified its gas supply sources for its important European markets. By creating more interdependence with Gazprom Shell also expects to improve the security of its remaining position in Sakalin.

Foreign investment in the oil sector has recovered from the bottom, but won't ever get back to the levels of the days of the oligarchs in charge. Some of the gap has been filled with Chinese finance for Russian-led development.

I suspect that this latest move by Russia is an attempt to bring a so far reluctant BP to the negotiating table and have them put some desirable international asset that Gasprom wants access to into play. In this case, however, it's not clear if BP is interested in swapping a position outside Russia for increased exposure inside Russia. Going to be interesting to see how this plays out...

[*T*]

Re: Peak Oil: Looking for the Wrong Symptoms?

LOL, this sounds very arrogant, especially considered that itulip argued very hard against the peak oil thesis till the July 2008 crash in oil prices.

Where is Lukester in his moment of glory?