Reporting gross oil production to hide the collapse of net oil production

[bpwoods]

Re: Reporting gross oil production to hide the collapse of net oil production

EJ, I would much prefer not to cross keyboards with you on this matter of 'oil'. But I would like to re-iterate that 'oil' (an absolutely essential input to our economic process) is a duality: it is a kinetic flow of energy, but it is also a static commodity. In its latter incarnation you may treat it - quite properly, in economic terms: supply-demand and price. However, in its alternate incarnation it is a very different matter (no pun intended) indeed. And the different types of energy we need for our economic processes have quite different characteristics and properties which cannot be described in economic terms. An example may help. Liquid transport fuels have somewhat more than twice the 'energy punch' of the liquified methane (nat gas). That's not completely accurate, but it should suffice for this explanation. Hence, to get the same energy return (effective economic output) you need to double the amount of nat gas used. So, if by some great technological feat we manage to migrate our transport fleets and fueling infrastructures from liquid octanes to liquid methane we are going to need a tad more of the latter. Fancy a trip in a methane fueled airplane? Not I!

As I said at the beginning, I would prefer not to cross keyboards with you on this issue (I've been a fan since you re-opened - and have learned an immense amount. So many thanks to you and your contributors]. Best wishes. Brian.

[Shakespear]

Re: Reporting gross oil production to hide the collapse of net oil production

but it is also a static commodity.

In my case I know oil from the "front-line". It is elusive and after 30 years being involved with it, finite. Finite to the extent that armies are now involved to make sure we have access to it. Now that is a huge change and says something about how the picture has changed as to its accessibility. Obama is visiting Burma !!! Why? Well in part, my thinking, oil/gas. There is some there and maybe (some think) there is more than we think. Who knows.

Whatever we think, the games HAS CHANGED. Things are not the same and not anywhere close to the way they were in 1980's where oil production limits simply did not exist or were even imagined.

[Raz]

Re: Reporting gross oil production to hide the collapse of net oil production

"Juju it is worth thinking about Cuba. Is Cuba a model for what energy descent looks like? Cuba is poor in comparison to some, but people aren't starving to death and there are services, universities, medical care. Perhaps better to be poor in Cuba than Mexico, for example. It is possible the U.S. embargo has made Cuba an outlier, but OTOH Cuba is free to trade with the rest of the world, when it has something the rest of the world wants."

Yes, I also think Cuba is a model about doing "more with less".
But, of course, Cuba is a socialist country. That means, in concrete terms: All finance, big industry, foreign commerce, big chunk of the land (agricultural, not urban), education, health prevention and treatment, communications (at least most of it, the rest in private associated with the State) are owned and run by the State.
Part of the land, small businesses (cafeterias, restaurants, repair shops, barbers, etc), local taxi transport, and some other things are being privatized in an organized and progressive way.
Politically information is heavily controlled (well more or less as in Uruguay or the US) except that in Cuba there is few access to the internet.
The time after the fall of the Soviet Union was very harsh. They called it "special period" (período especial) meaning a war economy without war. And when I say harsh, it means hunger.
As distribution is very State controlled, and thus egalitarian, the social fabric remained in the essential. However, there was a descent in the moral standing of the population due to the extreme and prolonged misery.

After that, by means of being able to sell Venezuela services (health, education, security; there are no less than 40.000 Cuban specialists, most of them doctors working in Venezuela and the Cuban State collects significant part of their pay) which were in exchange of oil; Cuba was able to grow and the condition of the people is better.

I think the morals of the Cuban history is how a planned society can do much better when conditions are particularly complicated.
In a ways war economies (think Germany, USA, UK) have as far as I know been planned economies. The State being the planner.
When there is no plan and the economy goes down the tubes things get ugly pretty soon. Europe is a show case, and of course I am sure the worse is still far off.
People have a high tolerance for suffering when misery is well distributed. When a few go on living in the middle of the luxury and the most see their standard of living falling sharply expect very ugly things to happen.

Cuba is a model of how NOT to run a country. There is absolutely no reasonable comparison between the Cuban "media" and the media in the United States. Communism doesn't work, and never will. Lenin, Suslov and all the other theoriticians ignored human nature.

Venezuela gets very little from Cuba for all the oil they give Castro other than comradship and revolutionary satisfaction. Chavez is slowly destroying Venezuela and when he goes Cuba will TOTALLY collapse, even if we end the embargo.

National Geographic's November 2012 cover story is on Cuba. It's an excellent read.


http://ngm.nationalgeographic.com/20...ba/gorney-text

[gnk]

Re: Reporting gross oil production to hide the collapse of net oil production

As Dick Cheney once said, Oil is Strategic. But I'll also add this:

Oil is not just energy. Petroleum by-products are in plastics, lubrication for everything from iPhones to lawnmowers, agricultural herbicides and pesticides, pharmaceuticals, detergents, refrigerants, toothbrushes, clothing and shoes, childrens' toys... I can go on and on. Let's just say we are petroleum man.

Oil is used to transport things made from oil - from tires/wheels that keep our world moving to food that relies on oil based herbicides and pesticides.

Even if we find another source to replace oil, the world will not be the same. Oil is strategic because our monetary system (what I call an abstraction) is actually based on oil. And thus, our entire financial system is based on oil. Projections of future income and valuations inherently assume a certain price of oil. The current global hegemon, the US, is involved with oil to maintain its hegemon status and to maintain a certain amount of order in the world. Take that away and who is in charge? What global order/disorder develops?

Let's assume that an essentially free alternative source of energy was discovered/invented. Let's assume that any country can replicate this energy source cheaply. What would the world then look like? Would it be a utopia? Or would the global monetary system change, alliances realigned, and due to increased economic activity, new wars would develop over the next remaining resources that would be quickly depleted due to this new economic system?

It's not just about oil; here's another example: Does anyone here know what is going on with phosphorous right now? Again, it's not just about oil. Check out a long term price chart for phosphorous. Understand how important phosphorous is. There are other things as well. But I don't want to go overboard here.

Mankind is entering a new period. It will likely get ugly. Our current system is rapidly changing. However, I'm not saying it's time to move into the bunker yet. It's a macro view... over the next 100 years? And to borrow a recently used phrase from EJ, a "process not an event." (That is a very important concept - one that PO and Gold Bug doomers need to understand.)

Nonetheless, I fear mankind is entering a dark age. We won't understand it. Instead we'll focus on abstractions such as money, or the recent robber barrons du jour, or "good" and "bad" countries in the new wars that will develop, etc...

I'm speaking macro here.

One more thing. Mankind is unwittingly breeding the next superbug(s). I don't know where it/they will specifically come from, but it will likely come from Agriculture. Agriculture today uses the most antibiotics and drugs for farm animals from cows to bees. What does this mean? Well, in the grand scope of history, modern agriculture is a recent development. Both petroleum and drugs contributed to its rise and the subsequent exponential/rocket growth of the human population.

But here' s the rub: we are using more and more drugs on farm animals, and the use of these drugs/antibiotics is not well regulated. We are breeding animals that are reliant on drugs all the while creating stronger strains of the very pests and diseases we are trying to control. This process of pest/disease evolutionary "improvement" is happening much faster in pests/diseases that affect farm animals than in pests and diseases that affect humans. The UK recently stopped tracking antibiotic use in bovines. Why? Nature always had a balance between parasite and host. The two co-evolved. In modern agriculture we have interrupted that and I don't know how long we can keep that game going. Speak to any old farmer that keeps anything from sheeps to bees. Ask them how many drugs they used 50 years ago, and how many drugs are used today. Ask them how many diseases existed in the past, and how many exist today.

What I'm trying to say here is that although I agree modern life is wonderful and much better than it was say 100 or even 60 or 40 years ago, for many reasons, it may not be as sustainable. We are constantly playing catch up with nature. Nature always balances itself - and no species is immune to that fact. All species have a population growth "restriction" based on diseases and renewable resource use. We are the only exception, so far. But I could be wrong. Maybe our global population will level off peacefully, maybe we domesticate every square meter on the planet and continue to keep up with nature's tendency to "correct" populations...

Sorry to go off topic. But in an earlier post on this thread, I mentioned the EROEI model is an extremely macro view. I'm looking at a macro view of both space and time here - which in our highly complex world, involves so many things, that it is extremely difficult to grasp. I am 42 years old. I believe that if I live long enough, I will see some drastic changes in the world - and not the kinds of changes the prior generation saw on the up-slope of growth.

[aaron]

Re: Reporting gross oil production to hide the collapse of net oil production

I believe ethanol requirements were put in place as a way to develop a strategic asset and prepare the country for the changes to come.

The U.S. now has a huge agricultural industry that can feed friends around the world. Iran is one poor harvest away from the end of their state. Food trumps oil at the end of the day. If we expect global warming to affect things badly, then the U.S. is very smart in developing extra land for agricultural use.
Moreover, the ethanol factories probably have a special lane all set up for military/emergency use. It is a "back up" energy source that can work in a pinch.

Also, with the current natural gas boom, fertilizer ought to be cheap. If that continues, then the u.s. will have an even greater advantage in the agricultural sector.

[duanef]

Re: Reporting gross oil production to hide the collapse of net oil production

The article on Cuba is interesting for the picture painted in the background. Yes the Cuban economy is distorted by tourist dollars, and this results in strange side effects like taxi drivers earning more than doctors. But what is also described is a society in which there IS ballet, baseball games, museums, mass transit and so forth. Not affordable to everyone, or only on the rarest of special occasions, then again what does it take for a family of four to get decent seats at an NBA game these days?

Note the stories surrounding the various people - the one guy says 80% of his graduating high school class has left Cuba. There are mentions of emigrating to Spain and Mexico. I did not realize the border was as open as all that. I suspect with the stories of dangerous boat passages to the U.S., the impression I received was more of a closed society. Now I suspect that reflects emigration to the USA in particular.

If I do the math on Cuba the population of the USA is 28x the size. Cuba's oil consumption is around 175,000 bbl/day which if I am correct would equate to U.S. consumption of just under 5 million barrels per day. So I wonder if at 5mbpd the US has those things, and what it looks like?

[bpwoods]

Re: Reporting gross oil production to hide the collapse of net oil production

Raz, What IS a good model of how to run a country? Cuba seems a lot like East Germany with sunshine (and hurricanes!). Its all relative Raz - relative! Leave them alone. Let them arrange their own salvation - or whatever. What would a visitor to Detroit recount to NG? New Orleans still looks a tad shook. And West Virginia is hardly a beacon of equality and opportunity.

[FrankL]

Re: Reporting gross oil production to hide the collapse of net oil production

...
Frank re: the Norwegian sovereign wealth fund. I think you should take another look. What would Norway look like today if they had just left it all in the ground? In terms of balancing present and future reward I would argue there is no other country that has done a better job of stewardship.

I have no issue with extracting some oil for investing in a long term viable economy. This mostly mean investments in good education, and narrow-defined research institutes and allied companies that focus on a number of areas in which the country can develop enough expertise to compete in a global market. Spending income from natural resources on other parts of the economy and on the welfare state likely leads to a form of the Dutch disease. There's no reason why Norway would have been significantly worse off than its neighbours Denmark and Sweden if it didn't have access to their oil income.

Now why would you invest money from oil on a sovereign wealth fund? Do you suggest that the long-term income and value from equities and bonds exceed the long term value from oil that you could have NOT pumped up to pay for these forms of assets?
How much money is there in the assets of the sovereign wealth fund? How much would the oil that has been pumped up to pay for this have been worth if it would still remain in the soil in todays oil prices? Let alone in next year's, or next decades' prices...

[Raz]

Re: Reporting gross oil production to hide the collapse of net oil production

Raz, What IS a good model of how to run a country? Cuba seems a lot like East Germany with sunshine (and hurricanes!). Its all relative Raz - relative! Leave them alone. Let them arrange their own salvation - or whatever. What would a visitor to Detroit recount to NG? New Orleans still looks a tad shook. And West Virginia is hardly a beacon of equality and opportunity.

I cannot always say what will work - but I can say, based upon historical evidence, what won't work. Effective economic policy for a large, ethnically diverse country is likely to be different for a small, mostly homogenous country. The United States had a pretty good model from about 1950 - 1965. Then it went haywire. BTW, did you read the NG article on Cuba?

Leave them alone? Amen to that! Being a Paleoconservative I believe the US would have been far better served had we left all other countries "alone".

As for Detroit: that's what you get with (a) apathy and greed on the part of industrial managers and labor unions who believe they don't really have to compete in the marketplace because their oligarchy will prevail, and (b) governments deciding that they can always depend upon rising revenues from an ever-increasing tax base. Put the two together along with cultural decay and viola: I give you present-day Detroit!

Don't know much about West Virginia. Perhaps you could educate me on that one?

[Southernguy]

Re: Reporting gross oil production to hide the collapse of net oil production

I read the NG work on Cuba quite carefully.
Itīs fairly objective in many ways. However, key information is missing: 1) The US law granting automatic residence status to any Cuban arriving at USA by non legal means. The "foot on the sand" policy. Imagine how things would develop if there was a similar law for Mexicans, Salvadoreans et al. 2) The importance of USA embargo ("blockade" the Cubans call it). This is not only depriving Cuba of itīs most important market for everything; including of course tourism, sugar, ron, pharmaceuticals, health tourism, etc.
Itīs also blocking business with nearly all the rest of the world. Just try to find some company in the world in any area that do not have a USA participation in shareholding.
Well, any company that has US shareholding in significant amount is barred from doing any kind of business with Cuba.
And then there is a permanent pressure from USA Gov. to any other businessman-company doing business with Cuba. "If you trade with them, forget about trading with us".
So, if as Raz says; Cuba would be a failure without US embargo: Why does USA holds the embargo?
Why do the now not so powerful Cuban exile anti-Castro community puts all the pressure it can get so as to US Gov. keep the embargo policy?
To me the answer is simple: They know quite well that without the embargo, the socialist Cuban history would be one of success. Very dangerous for governing interests in USA and main capitalist oligarchies.
I canīt find any other explanation for the phenomenon.

[cjppjc]

Re: Reporting gross oil production to hide the collapse of net oil production

Why do the now not so powerful Cuban exile anti-Castro community puts all the pressure it can get so as to US Gov. keep the embargo policy?
To me the answer is simple: They know quite well that without the embargo, the socialist Cuban history would be one of success. Very dangerous for governing interests in USA and main capitalist oligarchies.
I canīt find any other explanation for the phenomenon

The answer is the Cubans in this country hate Castro and the Cubans who never left, with the exception of family members. The hate all these decades later is still voiced often.

[duanef]

Re: Reporting gross oil production to hide the collapse of net oil production

How much money is there in the assets of the sovereign wealth fund? How much would the oil that has been pumped up to pay for this have been worth if it would still remain in the soil in todays oil prices? Let alone in next year's, or next decades' prices...

It is difficult to discuss a hypothetical value in the future. Nonetheless we do know that the oil fund is the largest sovereign wealth fund in the world, and on a proportional basis ($650B relative to the population of Norway) equates to a fund of $40T in the USA. This compared to the social security "surplus" of some $4.5T that has been borrowed and spent. This is why I congratulate Norway for 1. keeping their hands off it, 2. keeping a public resource from becoming private profit, and 3. growing the balance into a sizeable nest egg for the years to come. Though diverse, losing those assets is indeed a preoccupation.

[Raz]

Re: Reporting gross oil production to hide the collapse of net oil production

...

So, if as Raz says; Cuba would be a failure without US embargo: Why does USA holds the embargo?
Why do the now not so powerful Cuban exile anti-Castro community puts all the pressure it can get so as to US Gov. keep the embargo policy?

To me the answer is simple: They know quite well that without the embargo, the socialist Cuban history would be one of success. Very dangerous for governing interests in USA and main capitalist oligarchies.
I canīt find any other explanation for the phenomenon.

Remove the embargo and leave the communist system completely in place and Cuba will remain an economic failure.

I will put my money where my mouth is: send me a PM with your E-mail address and I'll respond with a contactural bet for any amount up to $10,000.00.
Should the embargo be lifted and the communists remain in power - without doing a Deng Xiaoping - I'll take the bet.

[bpwoods]

Re: Reporting gross oil production to hide the collapse of net oil production

Raz, apologies for the delay in replying. Yes I read the NG. I would class it as suitable for reading whilst waiting for your flight (the air variety, not the exit one!). It is informative in a thin fashion, but the quandry for the regime in Cuba is how do you extract yourself from a political and economic closet of your own construction (you dis-remembered to install a handle on the inside). They'll survive. James Galbraith has recently published a book: Inequality and Instability, and he devotes a full chapter to Cuba. Sobering stuff.

The Scandanavian model might pass as a 'good' model for modern governance. Mind you, they are no angles up there, and they did (and do) have some tricky economic problems. The 'trick' is that their politicans and electorates recognise and accept that increasing levels of social and economic inequality automatically ensure that the state will have to intervene at some point. So, they pro-actively minimize inequalities (not always successfuly). They have a positive record in minimizing income disparities across different sectors, have kept un-employments lowish by European standards and ensured excellent basic health care and education (at all levels). They managed this with taxation and straight-forward sensible fiscal planning (the opposition parties are involved in this).

West Virginia. This state has the unenviable record of the state with the worst levels social inequality in the US. Lowest employment record: lowest average income: highest levels of individual poverty. Its truely shocking. But that is the US of A for ye! If the national ideology of the US is in favour of self-help, or whatever, then how do the underclass attempt to improve themselves (in a consumer demand market) without a 'living' (not a minimum) income? They do not. Mimimal social transfers will only ensure the underclass do not get into worse situations. And you have clear daily evidence in the US what happens when social transfers are either less than minimal (or worse, are absent). Poor folk will endure hardship, but hungry folk can be a tad troublesome. I see there has been a further QE in Food Stamps!

Hope this is helpful. Best regards.

[GRG55]

Re: Reporting gross oil production to hide the collapse of net oil production

...Now why would you invest money from oil on a sovereign wealth fund? Do you suggest that the long-term income and value from equities and bonds exceed the long term value from oil that you could have NOT pumped up to pay for these forms of assets?
How much money is there in the assets of the sovereign wealth fund? How much would the oil that has been pumped up to pay for this have been worth if it would still remain in the soil in todays oil prices? Let alone in next year's, or next decades' prices...

LOL. I've been listening to this sort of argument since I was a young graduate starting out in the oil industry. The logical extension of your argument is that ALL oil that could be produced should instead be left in the ground indefinitely in the hopes it might be "worth more" on some future day.

As for "sovereign wealth funds", these are always and everywhere creatures of politics...not sensible economics...