What is Saudi Arabia not telling us about its oil future?

It is popular these days to speculate about why Saudi Arabia cajoled its OPEC allies into maintaining oil production in the face of flagging world demand. As the price the world pays for oil and oil products has plummeted, the price OPEC members are paying in terms of lower revenues is high, even unbearable for those who didn't save up for just such a rainy day.

Was the real reason for the decision to maintain production the desire to undermine rising U.S. tight oil production--which has now proven embarrassingly vulnerable to low prices after years of triumphalist talk from the industry about America's "energy renaissance"? Were the Saudis also thinking of crippling Canada's high-cost tar sands production? Was it Sunni Saudi Arabia's wish to undermine its chief adversary in the region, Shiite Iran? Was the Saudi kingdom doing Washington's bidding by weakening Russia, a country that relies so heavily on its oil export revenue?

The Saudis say explicitly that they believe non-OPEC producers must now balance world oil supply by cutting back production rather than relying on OPEC--meaning mostly Saudi Arabia--to do so. And, those cutbacks in the form of drastically reduced investment are already taking place in the United States, Canada and around the world as low prices are forcing drillers to scale back their drilling plans dramatically. It is not well understood, however, that almost all of the growth in world oil production since 2005 has come from high-cost deposits in the United States and Canada which has made the two countries easy and tempting targets for the Saudis' low-price strategy.

William Catton's warning

William Catton Jr., author of the seminal volume about our human destiny, Overshoot: The Ecological Basis of Revolutionary Change, died last month at age 88.

Catton believed that industrial civilization has sown the seeds of its own demise and that humanity's seeming dominance of the biosphere is only a prelude to decline. His work foreshadowed later works such as Joseph Tainter's The Collapse of Complex Societies, Richard Heinberg's The Party's Over: Oil, War and the Fate of Industrial Societies, and Jared Diamond's Collapse: How Societies Choose to Fail or Survive.

In Overshoot Catton wrote: "We must learn to relate personally to what may be called 'the ecological facts of life.' We must see that those facts are affecting our lives far more importantly and permanently than the events that make the headlines."

Alternate opinions: The world's energy information duopoly comes to an end

Recent developments are beginning to undermine the supremacy of the world's long-running energy information duopoly and its perennially optimistic narrative. Policymakers, investors and the public should take heed.

Until now most energy price and supply forecasts and analyses were based predominately on information from the globe's two leading energy information agencies: the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, and the International Energy Agency (IEA), a consortium of 29 countries originally formed in response to the 1973-74 Arab oil embargo to provide better information on world energy supplies to its members.

Both agencies provide forecasts that are publicly available and widely covered in the media. What's not apparent is how dependent private forecasts issued by the energy industry and financial firms are on the work done by these agencies.

Commodities crash: Bad news for the world economy, but is anyone listening?

Reading the general run of financial headlines might lead one to believe that price declines in those commodities which are highly sensitive to economic conditions such as iron ore, copper, oil, natural gas, coal, and lumber are good on their face.

Obviously, the declines aren't good for those who sell these commodities. But, those of us who buy these commodities in the form of cars, houses, utility bills and other products and services ought to be helping the world economy as we buy more stuff with the freed up income.

As true as that may be, these commodity price declines also signal something else: exceptional weakness in the world economy. It is no secret that economic growth in Europe has been stalled for some time and is now receding. The European Union's confrontation with Russia over the Ukraine conflict and the resulting tit-for-tat economic sanctions levied by both sides are only worsening the economic climate.

The most important thing to understand about the coming oil production cutbacks

What the current oil price slump means for world oil supply is starting to emerge. "Layoffs," "cutbacks," "delays," and "cancellations" are words one sees in headlines concerning the oil industry every day. That can only mean one thing in the long run: less supply later on than would otherwise have been the case.

But perhaps the most important thing you need to understand about the coming oil production cutbacks is where they are going to come from, namely Canada and the United States.

Why is this important? For one very simple reason. Without growth in production from these two countries, world oil production (crude oil plus lease condensate which is the definition of oil) from the first quarter of 2005 through the third quarter of 2014 would have declined 513,000 barrels per day. That's right, declined. Including Canada and the United States, oil production rose just under 4 million barrels per day.

U.S. Department of Energy: Our forecasts aren't really forecasts (or are they?)

Put this in the category of things that can't be true, but that are nevertheless affirmed with a straight face: The U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, does not issue forecasts, at least not long run forecasts.

So says Howard Gruenspecht, deputy administrator of the EIA, in a letter to Nature, the respected science journal. Gruenspecht was responding to recent coverage of an alleged EIA forecast which paints a rosy picture of U.S. domestic oil and natural gas production through 2040, a view challenged by the article in question.

Here is the bureaucratese from the letter: "Contrary to the presentation in the Nature article, EIA does not characterize any of its long run projection scenarios as a forecast." Long run projection scenarios....huh. What could those actually be if not forecasts? And, why is the deputy administrator making such a big deal of this? We'll come back to the second question later.

The central contradiction in the modern outlook: 'Planet of the Apes' vs '2001: A Space Odyssey'

When talking about the perils of climate change or resource depletion, soil degradation or fisheries collapse, water pollution or nuclear waste--how annoying it is to have one listener respond dismissively, "They'll figure something out. They always have."

It's a nonsense rejoinder and yet, it often gains the assent of many--as if this assertion were a self-evident truth that only an enemy of progress would question. And, that's where we'll start examining the central contradiction in the modern outlook--with a statement that is offered as if it were a scientific fact, when, in truth, it is nothing more than a piece of dogma enunciated by the religion we call modernism.

At first glance, the statement seems backward-looking because it asserts that we humans have always averted catastrophe through our ingenuity. But, of course, this is complete hogwash. History is replete with civilizations that have risen and then fallen, crumbling for myriad reasons eerily similar to ones said to threaten our own: climate change, resource depletion, soil degradation, water pollution, plagues, war, and political disintegration. The listener's statement above can't really be backward-looking for it would fall to pieces with only a cursory review of history.

Taking a short break--no post this week

I'm taking a short break this week and expect to post again on Sunday, January 11.

Five energy surprises for 2015: The possible and the improbable

The coming year is likely to be as full of surprises in the field of energy as 2014 was. We just don't know which surprises! I am not predicting that any of the following will happen, and they will be surprises to most people if they do. But, I think there is an outside chance that one or more will occur, and this would move markets and policy debates in unexpected directions.

1. U.S. crude oil and natural gas production decline for the first time since 2008 and 2005, respectively. The colossal markdown in world oil prices has belatedly been followed by a slightly smaller, but nevertheless dramatic markdown in U.S. natural gas prices. The drop in prices has already resulted in announcements from U.S. drillers that they will curtail their drilling operations significantly next year.

But drilling that is already contracted for will likely go forward, and wells waiting for completion will be completed. It can be costly to pull out of drilling contracts. And, failing to complete already successful wells and bring them into production is downright foolish since the costs incurred in drilling the wells including future debt payments remain. In those circumstances, some revenue at lower prices is preferable to no revenue at all.

Greed explained: J. Paul Getty, Aristotle and the Maximum Power Principle

Regular readers know I often write about energy, and while this piece may not at first blush seem like an energy story, you'll soon see that the quest for an ample supply of energy is, in fact, at the heart of human greed.

Greed is often said to be a central cause of our ecological and social ills. It motivates excessive and injurious exploitation of the planet and thus threatens the existence of many species including humans themselves. It leads to excessive economic inequality and the social ills presumed to be associated with that inequality. And, of course, greed is regarded as not just bad for the biosphere or society; it's bad for the soul and therefore earns a place on the list of the seven deadly sins.

Many people are convinced that greed is learned and therefore can be unlearned or not taught in the first place. Others believe that greed is simply an inherent evil in humans, part of the human condition.