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Dr. Stelzer is apparently an economist of some stature, consulted by a number of corporations and governments ingternationally. I was aghast to read the extent of his ignorance as to what he purports to review here. This is a great example illustrating why those who are disposed to automatically confer authority to a man with a Doctorate in Economics sounding off about resources are instead conferring their blind (and in this case also lazy) trust in a Phd. who is indulging the very worst sort of kneejerk uninformed generalities instead.
The gaps, errors and in once case, a rather large logical contradiction, strewn about this slack-minded, opinionated excuse for an intelligent commentary are enough to leave you gaping after having taken in the man's credentials.
Mexico's collapsing national petroleum production (did he bother to do five minutes of research on Pemex?) is imputed to lack of "modern methods", and "leftist legislators who have siezed government benches and are sound asleep on them" (how fanciful an explanation), global production is faltering, but he reassures, us with wryly authoritative humor, this is "not due to God’s failure to put enough of the black gold under our feet" (what a probing observation that is Doctor).
The good doctor's exposition goes on: Saudi Arabia's Abdallah Jum’ah, has ascertained (to the Doctor's satisfaction) that there's no need to raise oil production "because" market signals are “imperfect”. This must give us leave to breathe a sigh of relief as we've just uncovered the bedrock reason for Saudi refusal to raise production. Abdallah Jum’ah assures that they are not permitting any new barrels of production onto the market because "while the the oil is there, new production might drive down prices, as demand from the slowing American economy falls". Dr. Stelzer advises us this is a robust clarification. The Saudis further claim that "there is no incentive to go out and explore for more oil as oil prices at $120 are today sufficiently high", and Dr. Stelzer endorses this for our edification. This man is a consultant to governments?
And so on and so forth. Russia's production is falling because they've scared away the engineers with the expertise to maximise their ability to extract more oil from their major fields, etc. Production growth would roar back vigorously and on a globally sustainable basis he implies, if we apply modern extraction techniques more thoroughly throughout the world's oil fields. No mention is made of field collapse if the much vaunted modern technology is allowed to exploit reserves ever more aggressively.
Throughout this embarassing exposition of pet opinions, spiced with one or two gently patronizing hints of commiseration for the folly of those who may view the matter as somewhat less sanguine, what Dr. Stelzer fails to note is that the problem has never been claimed by any intelligent proponent as an immediate collapse of global production. It has always been referred to as a potential collision between flat global production growth and a global demand which is pulling away into higher rates of consumption growth than have been historical for mature economies for the past 30 years.
That really does not require much debate. This is a very populous bloc of nations which is price insensitive in their consumption and is growing that consumption at 5% annually. Least promising to a good outcome is the fact that their consumption growth is moving up from a very low base, and will very likely introduce a higher average secular consumption rate than the world has seen in a good few decades, if ever. Apparently a good few of us in the plebeian general public read around a bit more on this topic than the good doctor.
Open and inquiring minds see an emerging train wreck, but the good doctor has not seen fit to join us.
Global annual net petroleum supply growth is strongly hinting at winking out. Global industrialisation is going the other way, it is in fact accelerating to a pace faster than any in the past 100 years or maybe even 150 years. Putting these two fairly untutored observations together does not need to be intricately complicated. Perhaps that is precisely why the notion is becoming so "popular" as to irritate the good doctor into chasing his tail around in circles instead.
Finally the thing that shocks me most - coming from a Doctor of Economics with this dupe's credentials, is this: Note the careful ascribing of soaring petroleum prices to monetary inflation? Then note further in the article, the admission that "These $100+ prices have led to a massive flow of wealth, and hence power, from consuming to producing countries"?
Of course, this observation is quite manifestly true, no? Blistering banking and construction booms in Dubai and a dozen other oil rich nations, OPEC nations bursting at the seams with foreign earnings, Russia pumped up into a new global power on oil money, etc. etc. Well jeez - how did these nation's coffers get filled to the brim with all these massive holdings of hard purchasing power if all the money causing these oil prices to rise has been pure inflationary fluff? Presumably all these vast tides of money flowing from West to the oil producers has been just a wave of worthless fiat paper, so the oil sellers were getting duped into taking worthless scrip for their precious oil?
Yes, you could have massive inflationary abuse. causing a run to commodities as a currency refuge, but you could not absolutely have a massive global avalanche of real wealth transferring to oil producing nations and claim that entire flow was caused by "inflating currencies". If that were so, these countries would be raking in vast piles of worthless paper. The fact is, although the dollars they are raking in are devaluing sharply, their net gains in purchasing power are truly epochal in scale, vastly outstripping the devaluating occurring within the dollar in that same span of time.
This is why the thesis that all the eruption in the price of oil is in greatest part an "inflationary phenomenon" has one heck of a lot of explaining to do. These nations have received a gargantuan infusion of real hard wealth - and that infusion of real wealth is accelerating.
And by the way - this same question was put to iTulip months ago, and it fell into a black hole. The question was: "Why are these nations sucking the entire world's hard wealth into their coffers, on a gargantuan, history changing scale (1970's embargos don't hold a patch on the global scale of this event) if the soaring oil price is an inflationary illusion? A year ago, I would frankly have guessed iTulip's editors would have found a lot to like about Doctor Stelzer's analysis of the petroleum markets. Today, I'm still not sure which parts of my objections they still disagree with - the position I've gleaned here on this topic is just a tiny bit "ambiguous".
I'm still not quite clear as to whether iTulip's macro view is sufficiently "unbaggaged" to enable them to correctly pick the winning horse in this race (hint, "The Oil Drum" is not a bad horse at all). The editorial line on the Peak Oil thingy here has appeared on one or two occasions a little "prickly and equivocal". Yesterday to my duly gasping "shock and awe", we underwent a "disappeared thread" which had dwelt on this topic. It was apparently sullied by the impropriety of suggesting iTulip offer a proper rehabilitation to any Peak Oil authors who's data may be cited here, however casually. Yes, citing the data of those whom you have previously labeled "kooks" is somewhat bad form without at least a murmur of rehabilitation. These authors have done a heck of a lot of spadework on tabulating and organizing issues which we can now avail ourselves of without their effort.
One thing emerges for sure, from reading the good Doctor below - the morality tale here is that just because you read an opinion piece on the "folly of the oil-is-running-out doomers" from a man with a Doctorate in Economics, indeed even a Doctor with his robust international credentials, you still cannot abdicate from doing your own common sense thinking after he's had his say. And it may be difficult to tear yourself away from the comfortable glide of having someone like the good Doctor "tell you what to think".
I remain distinctly unimpressed by all the fruit salad doctoral credentials at least within his grasp of this topic - indeed his weak grasp taints my estimation of his integrity overall, insofar as a Doctor who is unabashed to spout off like this is a man possibly prone to do so elsewhere as well. If a man is making some sense relative to the observable data, I'll listen - if he's patently being led around by the nose by his own conceits, I'll decline
Take it away Dr. Steltzer (brilliant exposition follows):
____________________
IT'S A MYTH THAT THE WORLD'S OIL IS RUNNING OUT
From the April 27, 2008 Sunday Times (London) - April 28, 2008 - by Irwin Stelzer
There are more misunderstandings about the oil market than perhaps any other. In America, drivers are fuming and politicians are demanding explanations because petrol has hit about $3.50 a gallon. That’s 47p a litre, less than half the 105p-115p being paid by British motorists. So “high” in Cambridge, Massachusetts, and Oxford, Mississippi, is “low” in similarly named cities in Britain.
But assume that prices are “high”, which indeed they are by historic standards. We are mistaken when we think these “high” prices are causing inflation. High oil prices can force consumers to spend more on petrol and heating oil, at the expense of other purchases. Ask any suffering restaurateur or clothes retailer if you doubt that. But high oil prices can’t trigger a rise in the general price level – inflation – unless someone pumps money into the economy so that, to use an oldie but goodie from the economists’ lexicon, there is more money chasing the same amount of goods. If you want something to blame for inflation, don’t look at oil prices, look at the billions the Federal Reserve’s monetary policy gurus and their confederates at the US Treasury are pouring into the economic system.
Another myth: we are running out of oil. According to WorldPublic Opinion.org, “majorities in 15 of the 16 nations surveyed around the world think that oil is running out . . . only 22% on average believe that ‘enough oil will be found so that it can remain a primary source of energy for the foreseeable future’ ”. Those majorities who think we are running out of oil include 85% of the British and 76% of the American citizens polled. Luckily, they are wrong.
Production of oil is being constrained by several forces, none of them due to God’s failure to put enough of the black gold under our feet. Several countries that are important sources of supply are in political turmoil, and unable to bring to market the oil they are capable of producing. Think Nigeria, where security problems have shut down about 20% of the nation’s capacity of 2.5m barrels a day and discouraged new investment, and Iraq, where political paralysis and terrorists have kept production at less than half its potential.
Other countries will not develop the reserves of oil known to lie under their territories.
Russia has made it clear that foreigners who invest in its oil industry might be playing a game with Vladimir Putin known as heads I win, tails you lose. Find nothing and you lose your money; find substantial reserves and the state squeezes you until your shareholders’ pips squeak. Only companies at least 51% owned by Russians – read FOPs, Friends of Putin – are allowed to look for oil in the new, difficult areas in which it is to be found. Little surprise that oil output dropped in the first quarter of this year.
Mexico’s president, Felipe Calderon, wants to revive Petroleos de Mexico (Pemex), the world’s third-largest oil producer, by contracting with foreign companies to introduce modern methods of extracting more from existing fields and finding new ones. But legislation is stalled by left-wingers who have seized and are sleeping at podiums in both houses of congress.
Saudi Arabia’s royal family has announced that it will not expand capacity. Abdallah Jum’ah, chief executive of the kingdom’s oil company, said high prices didn’t mean the world needs more oil because such market signals were “imperfect”, and energy minister Ali al-Naimi has announced that there are no plans to embark on a new round of expansion. The oil is there, but with current production yielding about $120 a barrel, there is no incentive to find more, especially since new production might drive down prices as demand from the slowing American economy falls.
Venezuela’s oil industry can only be described as a mess. President Hugo Chavez’s cronies are inadequate substitutes for the technicians they have replaced, so production is falling, while foreign investors are reluctant to trust hundreds of millions in exploration dollars to a regime that treats contracts as the first step in a negotiation.
In America, Congress alternates between calls for “energy independence” and refusals to allow drilling in what it considers environmentally sensitive areas in Alaska and offshore California and Florida.
There’s more, but you get the idea. There is a lot of oil out there to be found and produced, not even including the vast reserves in Canada’s tar sands. We might have reached the age of peak panic about oil supplies, but not of peak oil. [ What a cracking-good one-liner doctor Stelzer! ]
One thing we think we know about the oil business is correct. High oil prices and the greenhouse gasses produced by using oil have important geopolitical consequences. These $100+ prices have led to a massive flow of wealth, and hence power, from consuming to producing countries. If oil were still $20 or even $40 a barrel Russia would not have the wherewithal to revert to its bullying foreign policy, and America’s banks would not be going hats-in-hand to Arab capitals in search of new capital. If petrol prices had not closed in on $4 a gallon in America, thousands of Chelsea tractors and small trucks would not be sitting, unsold and unloved, on dealers’ lots. If oil had not gone above $100 a barrel, the current enthusiasm for super-expensive nuclear power would not have reached fever pitch.
And if oil did not produce greenhouse gases when propelling cars and heating homes, there would be no huge subsidies for ethanol production, acreage would not be diverted from growing food to growing fuel, and the current run-up in food prices would be less steep.
So oil indeed matters. But not in the ways we most often think.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
The gaps, errors and in once case, a rather large logical contradiction, strewn about this slack-minded, opinionated excuse for an intelligent commentary are enough to leave you gaping after having taken in the man's credentials.
Mexico's collapsing national petroleum production (did he bother to do five minutes of research on Pemex?) is imputed to lack of "modern methods", and "leftist legislators who have siezed government benches and are sound asleep on them" (how fanciful an explanation), global production is faltering, but he reassures, us with wryly authoritative humor, this is "not due to God’s failure to put enough of the black gold under our feet" (what a probing observation that is Doctor).
The good doctor's exposition goes on: Saudi Arabia's Abdallah Jum’ah, has ascertained (to the Doctor's satisfaction) that there's no need to raise oil production "because" market signals are “imperfect”. This must give us leave to breathe a sigh of relief as we've just uncovered the bedrock reason for Saudi refusal to raise production. Abdallah Jum’ah assures that they are not permitting any new barrels of production onto the market because "while the the oil is there, new production might drive down prices, as demand from the slowing American economy falls". Dr. Stelzer advises us this is a robust clarification. The Saudis further claim that "there is no incentive to go out and explore for more oil as oil prices at $120 are today sufficiently high", and Dr. Stelzer endorses this for our edification. This man is a consultant to governments?
And so on and so forth. Russia's production is falling because they've scared away the engineers with the expertise to maximise their ability to extract more oil from their major fields, etc. Production growth would roar back vigorously and on a globally sustainable basis he implies, if we apply modern extraction techniques more thoroughly throughout the world's oil fields. No mention is made of field collapse if the much vaunted modern technology is allowed to exploit reserves ever more aggressively.
Throughout this embarassing exposition of pet opinions, spiced with one or two gently patronizing hints of commiseration for the folly of those who may view the matter as somewhat less sanguine, what Dr. Stelzer fails to note is that the problem has never been claimed by any intelligent proponent as an immediate collapse of global production. It has always been referred to as a potential collision between flat global production growth and a global demand which is pulling away into higher rates of consumption growth than have been historical for mature economies for the past 30 years.
That really does not require much debate. This is a very populous bloc of nations which is price insensitive in their consumption and is growing that consumption at 5% annually. Least promising to a good outcome is the fact that their consumption growth is moving up from a very low base, and will very likely introduce a higher average secular consumption rate than the world has seen in a good few decades, if ever. Apparently a good few of us in the plebeian general public read around a bit more on this topic than the good doctor.
Open and inquiring minds see an emerging train wreck, but the good doctor has not seen fit to join us.
Global annual net petroleum supply growth is strongly hinting at winking out. Global industrialisation is going the other way, it is in fact accelerating to a pace faster than any in the past 100 years or maybe even 150 years. Putting these two fairly untutored observations together does not need to be intricately complicated. Perhaps that is precisely why the notion is becoming so "popular" as to irritate the good doctor into chasing his tail around in circles instead.
Finally the thing that shocks me most - coming from a Doctor of Economics with this dupe's credentials, is this: Note the careful ascribing of soaring petroleum prices to monetary inflation? Then note further in the article, the admission that "These $100+ prices have led to a massive flow of wealth, and hence power, from consuming to producing countries"?
Of course, this observation is quite manifestly true, no? Blistering banking and construction booms in Dubai and a dozen other oil rich nations, OPEC nations bursting at the seams with foreign earnings, Russia pumped up into a new global power on oil money, etc. etc. Well jeez - how did these nation's coffers get filled to the brim with all these massive holdings of hard purchasing power if all the money causing these oil prices to rise has been pure inflationary fluff? Presumably all these vast tides of money flowing from West to the oil producers has been just a wave of worthless fiat paper, so the oil sellers were getting duped into taking worthless scrip for their precious oil?
Yes, you could have massive inflationary abuse. causing a run to commodities as a currency refuge, but you could not absolutely have a massive global avalanche of real wealth transferring to oil producing nations and claim that entire flow was caused by "inflating currencies". If that were so, these countries would be raking in vast piles of worthless paper. The fact is, although the dollars they are raking in are devaluing sharply, their net gains in purchasing power are truly epochal in scale, vastly outstripping the devaluating occurring within the dollar in that same span of time.
This is why the thesis that all the eruption in the price of oil is in greatest part an "inflationary phenomenon" has one heck of a lot of explaining to do. These nations have received a gargantuan infusion of real hard wealth - and that infusion of real wealth is accelerating.
And by the way - this same question was put to iTulip months ago, and it fell into a black hole. The question was: "Why are these nations sucking the entire world's hard wealth into their coffers, on a gargantuan, history changing scale (1970's embargos don't hold a patch on the global scale of this event) if the soaring oil price is an inflationary illusion? A year ago, I would frankly have guessed iTulip's editors would have found a lot to like about Doctor Stelzer's analysis of the petroleum markets. Today, I'm still not sure which parts of my objections they still disagree with - the position I've gleaned here on this topic is just a tiny bit "ambiguous".
I'm still not quite clear as to whether iTulip's macro view is sufficiently "unbaggaged" to enable them to correctly pick the winning horse in this race (hint, "The Oil Drum" is not a bad horse at all). The editorial line on the Peak Oil thingy here has appeared on one or two occasions a little "prickly and equivocal". Yesterday to my duly gasping "shock and awe", we underwent a "disappeared thread" which had dwelt on this topic. It was apparently sullied by the impropriety of suggesting iTulip offer a proper rehabilitation to any Peak Oil authors who's data may be cited here, however casually. Yes, citing the data of those whom you have previously labeled "kooks" is somewhat bad form without at least a murmur of rehabilitation. These authors have done a heck of a lot of spadework on tabulating and organizing issues which we can now avail ourselves of without their effort.
One thing emerges for sure, from reading the good Doctor below - the morality tale here is that just because you read an opinion piece on the "folly of the oil-is-running-out doomers" from a man with a Doctorate in Economics, indeed even a Doctor with his robust international credentials, you still cannot abdicate from doing your own common sense thinking after he's had his say. And it may be difficult to tear yourself away from the comfortable glide of having someone like the good Doctor "tell you what to think".
I remain distinctly unimpressed by all the fruit salad doctoral credentials at least within his grasp of this topic - indeed his weak grasp taints my estimation of his integrity overall, insofar as a Doctor who is unabashed to spout off like this is a man possibly prone to do so elsewhere as well. If a man is making some sense relative to the observable data, I'll listen - if he's patently being led around by the nose by his own conceits, I'll decline
Take it away Dr. Steltzer (brilliant exposition follows):
____________________
IT'S A MYTH THAT THE WORLD'S OIL IS RUNNING OUT
From the April 27, 2008 Sunday Times (London) - April 28, 2008 - by Irwin Stelzer
There are more misunderstandings about the oil market than perhaps any other. In America, drivers are fuming and politicians are demanding explanations because petrol has hit about $3.50 a gallon. That’s 47p a litre, less than half the 105p-115p being paid by British motorists. So “high” in Cambridge, Massachusetts, and Oxford, Mississippi, is “low” in similarly named cities in Britain.
But assume that prices are “high”, which indeed they are by historic standards. We are mistaken when we think these “high” prices are causing inflation. High oil prices can force consumers to spend more on petrol and heating oil, at the expense of other purchases. Ask any suffering restaurateur or clothes retailer if you doubt that. But high oil prices can’t trigger a rise in the general price level – inflation – unless someone pumps money into the economy so that, to use an oldie but goodie from the economists’ lexicon, there is more money chasing the same amount of goods. If you want something to blame for inflation, don’t look at oil prices, look at the billions the Federal Reserve’s monetary policy gurus and their confederates at the US Treasury are pouring into the economic system.
Another myth: we are running out of oil. According to WorldPublic Opinion.org, “majorities in 15 of the 16 nations surveyed around the world think that oil is running out . . . only 22% on average believe that ‘enough oil will be found so that it can remain a primary source of energy for the foreseeable future’ ”. Those majorities who think we are running out of oil include 85% of the British and 76% of the American citizens polled. Luckily, they are wrong.
Production of oil is being constrained by several forces, none of them due to God’s failure to put enough of the black gold under our feet. Several countries that are important sources of supply are in political turmoil, and unable to bring to market the oil they are capable of producing. Think Nigeria, where security problems have shut down about 20% of the nation’s capacity of 2.5m barrels a day and discouraged new investment, and Iraq, where political paralysis and terrorists have kept production at less than half its potential.
Other countries will not develop the reserves of oil known to lie under their territories.
Russia has made it clear that foreigners who invest in its oil industry might be playing a game with Vladimir Putin known as heads I win, tails you lose. Find nothing and you lose your money; find substantial reserves and the state squeezes you until your shareholders’ pips squeak. Only companies at least 51% owned by Russians – read FOPs, Friends of Putin – are allowed to look for oil in the new, difficult areas in which it is to be found. Little surprise that oil output dropped in the first quarter of this year.
Mexico’s president, Felipe Calderon, wants to revive Petroleos de Mexico (Pemex), the world’s third-largest oil producer, by contracting with foreign companies to introduce modern methods of extracting more from existing fields and finding new ones. But legislation is stalled by left-wingers who have seized and are sleeping at podiums in both houses of congress.
Saudi Arabia’s royal family has announced that it will not expand capacity. Abdallah Jum’ah, chief executive of the kingdom’s oil company, said high prices didn’t mean the world needs more oil because such market signals were “imperfect”, and energy minister Ali al-Naimi has announced that there are no plans to embark on a new round of expansion. The oil is there, but with current production yielding about $120 a barrel, there is no incentive to find more, especially since new production might drive down prices as demand from the slowing American economy falls.
Venezuela’s oil industry can only be described as a mess. President Hugo Chavez’s cronies are inadequate substitutes for the technicians they have replaced, so production is falling, while foreign investors are reluctant to trust hundreds of millions in exploration dollars to a regime that treats contracts as the first step in a negotiation.
In America, Congress alternates between calls for “energy independence” and refusals to allow drilling in what it considers environmentally sensitive areas in Alaska and offshore California and Florida.
There’s more, but you get the idea. There is a lot of oil out there to be found and produced, not even including the vast reserves in Canada’s tar sands. We might have reached the age of peak panic about oil supplies, but not of peak oil. [ What a cracking-good one-liner doctor Stelzer! ]
One thing we think we know about the oil business is correct. High oil prices and the greenhouse gasses produced by using oil have important geopolitical consequences. These $100+ prices have led to a massive flow of wealth, and hence power, from consuming to producing countries. If oil were still $20 or even $40 a barrel Russia would not have the wherewithal to revert to its bullying foreign policy, and America’s banks would not be going hats-in-hand to Arab capitals in search of new capital. If petrol prices had not closed in on $4 a gallon in America, thousands of Chelsea tractors and small trucks would not be sitting, unsold and unloved, on dealers’ lots. If oil had not gone above $100 a barrel, the current enthusiasm for super-expensive nuclear power would not have reached fever pitch.
And if oil did not produce greenhouse gases when propelling cars and heating homes, there would be no huge subsidies for ethanol production, acreage would not be diverted from growing food to growing fuel, and the current run-up in food prices would be less steep.
So oil indeed matters. But not in the ways we most often think.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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