Why Palast Is Wrong – And Why The Oil Companies Don’t Want You to Know it

Tuesday, May 23, 2006

HubbertGuerilla News Network - Excerpt from Armed Madhouse

Now that I've convinced you that the Peak Oil crowd is crackers, let me disagree with myself. We can't understand the new class war unless we understand why oil, a certain kind at least, has in fact "peaked."

We've long jumped over Hubbert's predicted peak and, in 2006, rolled our SUVs right through the "culmination"- that is, used the last drops of the one-and-a-quarter-trillion barrels of liquid crude the good Earth can provide according to the Hubbert jeremiad. Furthermore, "The rise in the production of power from nuclear energy for the United States" ran out long before uranium's five-thousand-year reign, despite Hubbert's hope and prediction. Except for a couple of unhappy decades' experimental folly with "reactors for peace," nuclear power is pretty much an irradiated corpse. The Shell/Hubbert predictions were dead wrong. Those are the facts.

But Hubbert was also deadly right. We are indeed running out of oil. There's no contradiction here. We have to distinguish between an economist's concept of "running out" and a scientist's.

To an economist, every commodity is finite. We are running out of oil and we are running out of copper, aluminum foil, birdbaths, pickles, lumber, clean air, Frappucinos, chocolate, tongue rings, lollipops, silver, cow-shaped milk dispensers, Dylan retrospectives and sand. That is why economics is called "the dismal science." Limits and scarcity are economists' bread and butter. There's a limited supply of every commodity. (And that is why love is not a commodity, as John Lennon noted, because the more you consume, the more you create.) On the other hand, unlike geologists and evangelical ministers, economists believe all commodities can be created as needed. There is an unlimited abundance of anything-oil, copper, hemorrhoid ointment, nose jobs or pornographic balloons. We can even manufacture real estate. (Think of the creation of Holland by landfill or the artificial habitation known as Los Angeles created by draining most of the Colorado River into the desert.)

The number one theorem of economics is that we are running out of everything and yet we can have as much as we want of anything. Again, there's no contradiction. All commodities are scarce and abundant at the same time. The difference between scarcity and abundance is price. You can get anything, in any amount, if you are willing to pay any price. (See Los Angeles, above.)

Back to Hubbert. His report was used in the cynical Shell Oil game to scare us into Middle Eastern conflicts, drilling tax subsidies and nuclear power. On its face, it was stone cold manipulative nonsense, measurably so. But we are running out of a certain kind of oil nevertheless: cheap oil. That is, we are coming to the end of the stuff we can pump at a low cost, the easy oil that practically jumps out of the ground. When we bring price into the equation, Hubbert was correct-technically. Oil production did peak in the 1970s-for a certain type of oil. Re-read Hubbert. When he wrote his analysis, oil was selling below $3 a barrel, just over $20 in today's dollars, and falling. Therefore, as prices declined further, we'd run out. We did. We've pretty much run out of new oil fields we can "lift" for $20 a barrel. Even the cheapest untapped fields in the world-not coincidentally in Iraq-will cost more than the "Hubbert price" to suck up and pipe out.

At low prices, there's not much oil. As prices rise, so does supply.

It's not magic. At $30 a barrel, Oklahoma stripper wells are worth reopening, drilling in the Gulf of Mexico becomes profitable in 3,000 feet of water, Kazakhstan's crude is worth piping out even with the high cost of transportation and bribes.

To simplify: World oil reserves, officially measured at 1.189 trillion barrels, are probably, as one of Mr. Hubbert's protégés stated a few years back, grossly overstated-if you assume oil selling at $10 a barrel. But kick the price up to a post-invasion $50 a barrel, and the world reserves are wildly understated.

Reserves are the measure of oil recoverable at a certain price. Raise the price, raise the reserve. Cut the price and the amount of oil in the ground drops. In other words, it's a fool's errand to measure the "amount of oil we have left." It depends on the price. At $9 a barrel (the price in 1998), we've peaked. It's over. All gone. But at $70 a barrel (reached in the third year of the Iraq occupation), miracles happen. Oil gushes forth like manna. How much more? If you are willing to pay $70 a barrel-and apparently you are-it's worth it to melt sand and drain out the petroleum. Indeed, the "tar sands" of Alberta, Canada, hold 280 billion barrels of oil-for enough high octane to run our Humvees for a century. Canada's tar oil reserves are, notably, about 15% higher than the oil reserves of Saudi Arabia. It's not pie-in-the-sky stuff. America is dependent on foreign oil-but not from Arabia. Our biggest source of oil is Canada and half of the Canadian supply today comes from tar sands. And that will grow. How could Hubbert have missed all this oil? Answer: He didn't. On page 20 of his famous "Peak Oil" study, he accepts that the planet can yield up 800 billion barrels of oil from tar sands equal to all the "crude" (i.e., liquid) oil we are using up.

Hubbert's Wars

So where did Hubbert get the idea that we are running out of oil? He didn't. He made no such prediction. Quite the opposite, he said, after predicting "the culmination of world production" by 2006, he noted, "This does not necessarily imply that the United States or other parts of the industrial world will soon become destitute of liquid and gaseous fuels..."

So what's going on here? This is where Hubbert brings in Canadian tar sands and heavy oils, which he correctly predicts could more than replace the cheap, easily obtainable "liquid crude" (as he calls the light stuff). And he doesn't fail to note the location of the giant supplies of the heavy oil: "Mesopotamia" (as Iraq was then known), Brazil and Venezuela.

So what was bugging Hubbert? We have plenty of oil, it just gets heavier. He warns against drilling for it, preferring a uranium-powered future. Why? Hubbert was writing in the hottest moments of the Cold War. The U.S. overthrow of Iran's government and the looming tension over the Suez Canal pushed America and the Soviet Union toward nuclear war-and underneath it all was the tussle over oil. Hubbert's peak did not identify dates we'd "run out of oil" but predicted the shift in the location of oil's main sources-to Iraq and Venezuela by the beginning of the twenty-first century, which had serious implications, he said, for "domestic purposes and national defense." To avoid conflicts between the U.S. and Russia, he hoped the superpowers in conflict would turn inward, to uranium, a resource abundant in both nations. The value of Hubbert's seminal "peak" paper was not in predicting the end of the oil era but in naming, with chilling accuracy, the date and location of our future wars.

Selling the Peak

So who's selling us Peak Oil today? The operator of the supertanker Condoleezza has been running an extravagant advertising blitzkrieg to tell us: We've peaked! "The world consumes two barrels of oil for every barrel discovered!" That's just the billboard. Their double-page spread in Harper's is even more hysterical: "The fact is, the world has been finding less oil than it's been using for twenty years now."

Unfortunately, that "fact" isn't a fact at all-reserves rise year after year-and those facts don't change because Chevron paid my magazine to print it. (If Chevron is truly concerned that more oil is burnt than discovered, it might consider looking for some. The industry has cut exploration budgets from a third of production spending to an eighth. But that's a churlish comment. Chevron is not in the business of finding oil, but finding profits.)

Ads sell. What is Chevron trying to sell us when it sells us the "peak" idea that we now use more oil than we discover? The ad says, "We need your help." I am, I admit, flattered that a big, giant oil company would ask my assistance. What could a petroleum goliath earning $14.1 billion in a year want from me? Apparently, more money.

The new oil Chevron is finding "requires a greater investment to refine." In other words, don't bitch about high prices-we need your cash to mix your next fix of crude.

The "we're running out of oil" line still has its uses. In 2005, taking advantage of oil-shortage hysteria, the Republican Congress passed an "energy" bill that was a Petroleum Club wet dream. For example, the feds can now order cities to accept liquid natural gas ports, a boon to Big Oil's Explosions-R-Us LNG divisions. Drilling under the caribou in Alaska is likely to follow. And, in 2006, George Bush is attempting to raise nuclear power from its crypt. In his State of the Union message, our nuke-salesman-in-chief admonished Americans for our "addiction" to oil-which was a bit like the pusher-man sermonizing against the dangers of the needle. Unfortunately, some environmentalists have echoed the "peak oil" theorem in the false hope that oil companies' raising prices will lead to conservation. Fat chance. Despite $50-a-barrel oil, we don't see windmills on the Empire State Building. We will reduce oil dependency only when we have a government less dependent on oil money.

A closing note of caution: I fear that some may take my noting the super-abundance of oil remaining on the planet as approval for our using it. Far from it-getting off the oil habit is an urgent working- class issue. First, because cheap, good air and water are in limited supply. We can't keep pooping combustion contaminants into the sky unless expect we expect our children to grow gills that will metabolize sulfur. There's lots of arsenic on the planet. Don't eat it. There's lots of oil. Don't burn it.

Second, massive oil use is like any other addiction-it sickens the user and only enriches the pusher; in the case of oil, that would be ExxonMobil, OPEC and Vladimir Putin. Get the petroleum needle out of our veins and we get the extra bonus of watching Citibank go through agonizing petro-dollar withdrawal.

On June 6, Penguin Dutton will publish GNN contributor Greg Palast's new book, Armed Madhouse: Dispatches From the Front Lines of the Class War. www.GregPalast.com.

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