"There are large stocks of refined products in western industrialised countries. However, the existence of these supplies is not dragging oil prices down. The reason is that the types of crude available from the Opec cartel tend to be heavy, sulphurous grades that are complicated or costly to process. The global market, meanwhile, is demanding ever more clean diesel fuels and low-sulphur petrol."
Pressures grow over oil supplies
The Herald, 4 July 2005

"Leaders of the Organization of Petroleum Exporting Countries said last week they have agreed to raise their formal production limits by 500,000 barrels a day to try to lower soaring oil prices. Though widely expected, economists have dismissed the move noting that the 10 member nations bound by it are already pumping that much. They said oil markets — and drivers suffering sticker-shock at the gas pumps — are unlikely to see much of a difference. Meanwhile, the discussion about what to do about high oil prices has already been overtaken by promises from Saudi Arabia — the only oil producer seen able to boost capacity from current levels — to raise production to keep prices from rising even further. But a just-released book by veteran oil industry investment banker Matthew Simmons is raising questions about those Saudi promises. Based on research drawn from hundreds of technical papers spanning four decades, 'Twilight in the Desert' argues that the kingdom's aging oil fields won't be able to sustain the higher levels of production needed to satisfy the world's growing thirst for oil. 'We’ve had an illusion for the last 40 years that there was so much oil in the Middle East that it would never run out,' Simmons said in a recent interview. 'What I’m offering is evidence. And all the optimists are offering is hope.' Simmons arrived at his assertions after a two-year review of hundreds of technical papers written by Saudi geologists and petroleum engineers. At the center of his argument is that the Saudis are relying heavily on just a handful of prolific oil fields that are now rapidly aging — with little evidence that new, untapped fields are waiting in the wings. To maintain production levels at those few, aging oil fields, Simmons writes, increasing amounts of water have to be pumped into the ground to force oil to the surface. 'The picture that emerges,' he writes, 'undermines the optimistic but unsubstantiated claims of Saudi officialdom.' Not surprisingly, Saudi officialdom has been vigorously refuting Simmons' assertions ever since word of his book and its findings first started circulating in oil industry circles last year..... Simmons also writes that the Saudi’s massive Ghawar oil field — which accounts for more than half of total production — is more than 40 years old, and he argues that the most productive areas already have been tapped. The past four decades of technical papers also show little evidence of promising new oil fields, according to Simmons. And past Saudi promises to boost output haven’t been backed up by actual oil shipments, he says. 'My guess is they're probably struggling to maintain 8 to 8.5 million a day of production and saying they’re doing 9.5 (million),' he said. If Simmons' assertions are correct, the world faces an energy crunch at least as significant as the oil shocks of the 1970s. Alternative energy sources are beginning to play a significant role. But most analysts and industry experts concede it will take at least a decade before renewable sources like solar, wind or bio fuels make a significant dent in global energy demand. Even then, most of these alternative sources are being used to produce electricity; oil is primarily used as a transportation fuel, for which there are no readily available substitutes. Simmons says he hopes his book will provide a 'wake-up call,' at the very least pressuring oil producers to allow independent verification, oil field by oil field, of production levels and surplus capacity. 'I hope I’m being overly pessimistic,' he said.  If he’s not, and growing oil demand is about to overtake global production capacity, Simmons argues that governments around the world need to begin preparing for that event, which he says would amount to 'the 9/11 of energy.' 'I really do believe that if we understand these problems and go to a war footing,' he said, 'we can actually fix this thing.' But he says doing so will take, among other things, 'a scientific expedition that exceeds what we did when we created radar and the atomic bomb.'”
Can Saudi Arabia keep its oil promises?
MSNBC, 20 June 2005

"Oil prices could rocket to $100 within six months, plunging the world into an unprecedented fuel crisis, controversial Texan oil analyst Matt Simmons has warned. After crude surged through $60 a barrel last week, nervous investors were pinning their hopes on a build-up in US oil-stocks to depress prices in the coming months. But Simmons believes surging demand will keep prices bubbling well above $50. 'We could be at $100 by this winter. We have the biggest risk we have ever had of demand exceeding supply. We are now just about to face up to the biggest crisis we have ever had,' he said.... He will publish a hard-hitting book this week in which he argues that Saudi Arabia, the world's largest producer, is running out of oil, and further price rises are inevitable as supplies decline. He warns that the scramble for resources could eventually descend into war."
Oil 'will hit $100 by winter'
Observer, 3 July 2005

"I think in total the [US EIA] outlook is much too high for production and it’s unrealistic for the world to be expecting such high numbers from all of the producers, including Saudi Arabia  .....   I think this is a rather dangerous situation for the US government policy to be based on."
Sadad al-Husseini
former vice-president for exploration and production of Saudi Arabia's national oil company Aramco
Channel 4, 26 October 2004

"Saudi Arabian Oil - A Glass Full Or Half Empty?"
   Presentation To Hudson Institute By Matt Simmons, 9 July 2004
Right Click Here (pdf file)

It's Time To Face Some Facts

"At the same time as demand has soared, oil supply has been held back by the legacy of a decade of under-investment. Throughout much of the 1990s, oil prices were stuck around $20 a barrel. There was little incentive for energy firms to pour cash into exploration, or increase refinery capacity."
World's crude awakening as oil hits $60
Observer, 3 July 2005

How Much Of The Full Picture Does The Above Explanation Provide?
Look At This Graph Of Inflation Adjusted Oil Prices Since 1947
Have Prices Generally Been Higher Or Lower Since The First Major Oil Crisis In 1973?
The Answer Is Higher
Then Ask Yourself Why Oil Discoveries Have Been Falling Continuously Since The 1960s Despite These Higher Prices
Is It Because In Reality The Price Has Been Too Low,
Or Because Oil Has Been Getting Harder To Find?

"Since 1869 US crude oil prices adjusted for inflation
have averaged $18.59 per barrel compared to $19.41 for world oil prices."
Oil Price History and Analysis
WTRG Economics

Oil Discovery (3 year average - past and projected) 1930-2050
Source: ExxonMobil/Association for the Study of Peak Oil
ASPO home page - click here

"....the number of major new oil fields discovered around the world fell to zero
for the first time in 2003, despite an obvious increase in technological expertise."
Is the world's oil running out fast?
BBC Online, 7 June 2004

"The international oil industry is struggling to discover enough new oil reserves, despite surging global demand for crude oil, according to a study by Wood Mackenzie, the energy consultants. In the face of steady annual increases in demand for oil over the past decade, the West's big oil companies largely have failed to improve the yearly exploration yield of new reserves to their portfolios, the study shows. Smaller discoveries and diminishing reserves per well are adding to pressure on oil companies in the West to gain access to large, unexploited oilfields in Russia and the Gulf states.... Mr Kellas said: 'Deep- water Brazil has been a big disappointment. No commercial discoveries have yet been made by international oil companies, despite having spent nearly $1.5 billion.'"
Oil industry 'struggling to find new reserves'
London Times, 14 June 2005

Oil Wars - Chinas's Bid For Unocal
'Seismic Change Is Afoot'

"Occasionally, there are tipping-point moments and we are witnessing one at the moment. Seismic change is afoot. As oil prices breach $60 a barrel and pessimists warn that the world could be as little as 10 years away from a first-order resources crisis, China's largest oil company, CNOOC, has launched a £10 billion bid for one of the US's juiciest medium-sized oil companies, Unocal. The world's two biggest continental economies are suddenly head to head over who controls increasingly scarce oil. The stuff of pulp novels at airport bookstalls is a reality. The reaction in the US has been immediate, aggressive and hypocritical. Much Congressional sound and fury has been vented on Russia for not opening up more to US oil companies which want to buy strategic reserves. Now that the boot is on the other foot - China buying an American oil company and its reserves - US congressmen and senators are deploying President Putin's arguments as their own. America's oil, jobs and national security are at issue, they blaze, and an investigation is already under way to see whether China's bid should be blocked on national security grounds. It is rigged to take months.... The Chinese want oil very badly. And they want it to be imported into China by oil pipeline and not by tankers from the Middle East under the watchful eye of the US navy. The US controls the sea lanes and thus the viability of China's economy, as it regularly lets the Chinese know by shadowing Chinese oil tankers... This is a new great geopolitical game and neither the Chinese nor American military are impressed by arguments that the market must rule and that great powers in today's globalised world no longer need strategic oil reserves. The US keeps six nuclear battle fleets permanently at sea supported by an unparalleled network of global bases not because of irrational chauvinism or the needs of the military-industrial complex, but because of the pressure they place on upstart countries like China.... No country has offered such a comparable challenge to the world order since Germany's rise at the end of the 19th century. Like China today, it wanted markets and raw materials; like China today, it confronted a world ordered around the needs of the existing powers; like China today, its gigantic size and explosive growth could not be ignored. Germany built fleets and scrambled for colonies in Africa. Today, China builds fleets and scrambles for oil reserves. The open question is whether it will end in another 1914.... the geological formations that create oil have already been identified and the easily exploitable reserves are rapidly depleting.... There is a Panglossian tendency to overstate oil reserves by oil-producing countries and oil companies alike, as we have learned from Shell. Oil production is set to peak much earlier.... Nobody knows how this drama will play out. The optimists could be right. But judge the vitriolic tone of the letter from 40 congressmen to President Bush complaining about CNOOC's bid; look at the disposition of US naval power; recognise the force of China's conviction that it must never again be humiliated as it was in the 19th century and its will to catch up with the West; and plot the growth of China's oil demand as its economy doubles again. The best way of avoiding war is not to dismiss its possibility as outlandish; it is to recognise how easily it could happen and vigilantly guard against the risk. Too few in Washington or Beijing are currently doing that. "
When the oil wars blow
Observer, 3 July 2005

"The enemy has landed. One of the worst nightmares of 'patriotic Americans' may soon come true. An unsolicited $18.5 billion offer from state-owned Chinese oil firm CNOOC to buy Unocal, America's ninth largest oil firm, has given a nation obsessed with energy security a shock. US-Sino relations are already tense - and this could be the moment the world realises a rival superpower to America has come of age. Last Thursday as Chinese executives stalked Wall Street to get their bid accepted by Unocal, Congress voted 398-15, backing a resolution that Chinese ownership of Unocal would 'threaten to impair the national security of the United States'. Furthermore, approval by Unocal's board of the bid should result in a 'thorough review' by President Bush. With the issue setting Beijing against the White House, Unocal's shareholders are caught in the headlights. The question is whether they have the courage to take Chinese cash that values Unocal's shares at $67 - especially as there is an agreed offer from US major Chevron on the table worth $60 per share that comes without political complications.... the deal would also give China a 9 per cent stake in the BP-led consortium building the $6bn Baku-Tiblisi-Ceyan oil pipeline, a project aimed at easing US reliance on the Middle East for oil. Wall Street oil analysts agree that what makes Unocal a must-have is the technical expertise that will allow CNOOC to compete for giant gas and oil exploration projects....  the world's two superpowers are on collision course over crude oil. Dave Simpson, America's acting deputy secretary of commerce, recently said: 'We appear to be competing more than partnering.' That competition is getting hotter. Only last week, consolidation in the Chinese oil industry saw the creation of its largest private oil enterprise, Great United Petroleum Holding Co, from more than 30 small and medium-sized private oil companies. It also emerged last week that China National Petroleum is poised to bid for Petro-Kazakhstan, the Canadian-based oil producer. China's spending on oil assets has been accelerating this year. Last January, Canadian Prime Minister Paul Martin visited China to discuss Chinese access to the Alberta tar sands. The summit yielded a crucial production-sharing agreement. In the same month, China National Petroleum Corporation signed a deal with Peru to study exploration deals. In all, it is thought Beijing has signed agreements worth $100bn with Latin America. In February, Venezuala and China signed 19 agreements, including investment in Venezualan oil fields."
Beijing buying spree sends Uncle Sam into shock
Observer, 3 July 2005

Bush 'Energy Policy' Precipitates New Global Anti-US Alliance - May 2005

".... the implications of China's exploding thirst for crude oil are epic in scope... Based on our analysis of the intense economic, crude oil, and military confrontations developing among the China Rim region’s largest economies, we believe that the most aggressive crude oil price targets calling for $100 per barrel within the next three years will prove to be conservative.... it is our opinion that the 'likely direction of surprise' in crude oil prices will continue to be to the upside.... There is not just one new economic behmoth emerging in the China Rim region, there are two... The simultaneous economic rise of China and India will have a huge impact on worldwide crude oil markets.... The rapid and simultaneous rise of at least two behmoth economies, China and India, comes at time when the world's oil production appears poised to peak. A sustained upward move in crude oil prices is likely to create drilling economics that will favor the exploitation of reserves that were previously uneconomical to tap. However, the marginal increase in reserves that might result is unlikely, in our view, to substantially offset the crude oil impact of an eventual worldwide 'peak' in crude oil production...While China's economic rise is fostering a worldwide grab for crude oil reserves, it is also creating a 'war chest' with which China is financing the rapid modernization of the People's Liberation Army (PLA). The PLA, in turn, is the ultimate guarantor of China's energy security. One of the key purposes of this analysis is to provide our research users with a 'context' or 'unified theory' for interrelating economic, crude oil, and military developments on the China rim.... The Laguna Research Partners Energy Security Index measures total military expenditures per barrel of crude oil consumed. We calculate ESI for nations and regions.... These figures lend credence to our view that the US is currently critical to the energy security of both India and Russia - in defence of sea lanes and oil fields, respectively - vis-a-vis China... Our ...    calculations show that China and the United States make estimated non-core military expenditures of US $47.01 AND US $42.38 per barrel of crude oil imported, respectively...[Japan, South Korea, India and Taiwan] have been beneficiaries of the US energy security umbrella. China's economic, crude oil, and military emergence, though, is prompting all of these leading China Rim crude oil importers to implement increasingly aggressive defence postures... From a short-term standpoint, worldwide crude oil demand is continuing to expand, but the world's crude oil production infrastructure is running at 'near full' capacity. From a long-term perspective, major new China Rim region buyers of crude oil - China and India - are emerging during a period when worldwide crude oil is approaching a peak. Meaningful new crude oil demand from Brazil will likely add to demand-side pressures during this critical 'peak oil' transition..."
Crisis on the China Rim: An Economic, Crude Oil, and Military Analysis
Laguna Research Partners, 14 April 2005
Who Are Laguna Research Partners? - Click Here
Download Full 85 Page Report - Click Here

"Optimists about world oil reserves, such as the Department of Energy, are getting increasingly lonely. The International Energy Agency now says that world production outside the Middle Eastern Organization of Petroleum Exporting Countries (opec) will peak in 1999 and world production overall will peak between 2010 and 2020. This projection is supported by influential recent articles in Science and Scientific American. Some knowledgeable academic and industry voices put the date that world production will peak even sooner—within the next five or six years. The optimists who project large reserve quantities of over one trillion barrels tend to base their numbers on one of three things: inclusion of heavy oil and tar sands, the exploitation of which will entail huge economic and environmental costs; puffery by opec nations lobbying for higher production quotas within the cartel; or assumptions about new drilling technologies that may accelerate production but are unlikely to expand reserves. Once production peaks, even though exhaustion of world reserves will still be many years away, prices will begin to rise sharply. This trend will be exacerbated by increased demand in the developing world..... The recent report by the President's Committee of Advisers on Science and Technology... concluded  'A plausible argument can be made that the security of the United States is at least as likely to be imperiled in the first half of the next century by the consequences of inadequacies in the energy options available to the world as by inadequacies in the capabilities of U.S. weapons systems.   It is striking that the Federal government spends about 20 times more R&D money on the latter problem than on the former.'... The nearly $70 billion spent annually for imported oil represents about 40 percent of the current U.S. trade deficit.... Research is essential to produce the innovations and technical improvements that will lower the production costs of ethanol and other renewable fuels and let them compete directly with gasoline. At present, the United States is not funding a vigorous program in renewable technologies.... The United States cannot afford to wait for the next energy crisis to marshal its intellectual and industrial resources....Our growing dependence on increasingly scarce Middle Eastern oil is a fool's game—there is no way for the rest of the world to win. Our losses may come suddenly through war, steadily through price increases, agonizingly through developing-nation poverty, relentlessly through climate change—or through all of the above."
Senator Richard G. Lugar and R. James Woolsey (Former Director of the CIA)
The New Petroleum - Foreign Affairs January/February 1999

"... the mideast will increasingly become the source of the world's oil, and this is a strategic problem for us and for many other countries."
James Woolsey, Former Director of the CIA
Online Interview with the Council on Foreign Relations and the Washington Post: June 7, 2000

"Our industry can certainly be proud of its past achievements. Yet the challenges we will face in the coming years will be every bit as great as those encountered in the past, due in part to ever-increasing global energy use. For example, we estimate that world oil and gas production from existing fields is declining at an average rate of about 4 to 6 percent a year. To meet projected demand in 2015, the industry will have to add about 100 million oil-equivalent barrels a day of new production. That's equal to about 80 percent of today's production level. In other words, by 2015, we will need to find, develop and produce a volume of new oil and gas that is equal to eight out of every 10 barrels being produced today."
John Thompson, President of ExxonMobil, the world's largest oil company
The Lamp (published for ExxonMobil shareholders), 2003, Vol. 85 No.1


Graph from ExxonMobil report 4 February 2004, p4 (2004 marker added for illustration)
'A Report on Energy Trends, Greenhouse Gas Emissions, and Alternative Energy'

Oil To Hit $161 Per Barrel?
US Forced To Contemplate National Energy Crisis
As Middle East War For Oil Starts To Slip Through Its Fingers

"... the mideast will increasingly become the source of the world's oil, and this is a strategic problem for us and for many other countries."
James Woolsey, Former Director of the CIA
Online Interview with the Council on Foreign Relations and the Washington Post: June 7, 2000

"Iraq can be seen as the first battle of the fourth world war. After two hot world wars and one cold one that all began and were centered in Europe, the fourth world war is going to be for the Middle East."
Former Director of the CIA, James Woolsey
NATO conference, Prague, November 2002

Iraq Strategy Backfires
"The oil fields of Iraq are the least depleted and least developed of any of the Persian Gulf oil producing countries, and Iraq has the potential to rapidly increase oil output....   Only Iraq has undeveloped supergiant oil fields (West Qurna, Majnoon, and East Baghdad) and the potential to rapidly increase production to 8-10 million b/d...... [However] The political situation in Iraq is unlikely to be conducive to major investment in new oil production capacity for some years..... Saudi Arabia has serious internal problems, which threaten to destabilize the ruling royal family. Iran remains under unilateral US sanctions. US military intervention in the Gulf and its failure to effectively and fairly engage in resolving the Palestinian-Israeli conflict conspire to provide a hostile backdrop to western interests in the Middle East. ....  It is quite possible that the Persian Gulf countries will not raise production capacity high enough or quickly enough, either for political reasons, the slowness of internal decision-making, or the hostile security environment. The consequences of this for world oil supply are immense, with the likelihood of further military interventions and conflicts within the Middle East …."
Oil Supply Challenges - 2: What Can OPEC Deliver?
Oil and Gas Journal, 7 March 2005

Now What?
"These scenarios unfolded in a simulated oil shock wave held Thursday in Washington. Two former CIA directors and several other former top policy-makers participated to draw attention to America's need to reduce its dependence on oil, especially foreign oil... Former CIA chief Woolsey described as 'relatively mild' the scenarios that the National Commission on Energy Policy and the advocacy group Securing America's Future Energy simulated. Both groups are pushing for reduced dependence on conventional oil. 'It was striking that by taking such small amounts off the market, you could have such dramatic impact' on world oil prices, said Robbie Diamond, the president of Securing America's Future Energy. Richard Haass was a top adviser to former Secretary of State Colin Powell until 2003. The simulation taught him how little influence policy-makers would have in reversing an oil shock wave. 'I think where most of the work has to happen now, both intellectually and politically, is on demand' reduction, Haass said."
Simulated oil meltdown shows U.S. economy's vulnerability
Knight Ridder Newspapers, 24 June 2005

    * Gasoline prices of $5.74 per gallon;
    * Global oil price of $161 per barrel;
    * Heating oil prices of $5.14 per gallon;
    * Fall of gross domestic product for two consecutive quarters;
    * Drop in consumer confidence by 30 percent;
    * Spike in the consumer price index to 12.6 percent;
    * Ballooning of the current accounts deficit to $1.087 trillion;
    * Decline of 28 percent in the S&P 500;
    * Aggressive pressure on the U.S. from China to end arm sales to Taiwan,
      and;
    * Demands from Saudi Arabia for changes to U.S. policy regarding the Mid-
      East peace process.

    Participants included:

    Robert M. Gates, former Director of Central Intelligence;
    Richard N. Haass, former Director of Policy Planning at the Department of
     State;
    General P.X. Kelley, USMC (Ret.), former Commandant of the Marine Corps,
     member of the Joint Chiefs of Staff;
    Don Nickles, former U.S. Senator;
    Carol Browner, former Administrator of the Environmental Protection
     Agency;
    Gene B. Sperling, former National Economic Advisor;
    Linda Stuntz, former Deputy Secretary of Energy;
    Frank Kramer, former Assistant Secretary of Defense for International
     Security Affairs, and;
    R. James Woolsey, former Director of Central Intelligence.

    Other key findings:

    * Once oil supply disruptions occur, there is little that can be done in
      the short term to protect the U.S. economy from its impacts, including
      gasoline above $5/gallon and a sharp decline in economic growth
      potentially leading into a recession.

    * There are a number of supply and demand-side policy options available
      that would significantly improve U.S. oil security.  Benefits from these
      measures will take a decade or more to mature, and thus should be
      enacted as soon as possible.

    * Supply-side measures include promoting developing of conventional oil
      reserves in nations currently off limits to private investment through
      enhanced U.S. diplomacy, increase research and development into
      environmentally-benign extraction of unconventional oil reserves such as
      oil shale and tar sands, and enable siting of new liquid natural gas and
      other energy facilities.

    * Demand-side measures include promoting energy efficient passenger
      vehicles with incentives for hybrid electric vehicles, strengthen fuel
      economy standards, and increase research and development into plug-in
      hybrids and hydrogen fuel cell vehicles.

    * Alternative fuel measures include increased research and development
      that enables ethanol production from plant materials, fischer-tropsch
      diesel from domestic coal, and hydrogen from coal and eventually from
      renewable sources.

In Over 25 Years America Has Learnt Little About Energy Security
'Famous Last Words' - Jimmy Carter On Oil, 1979

"Beginning this moment, this nation will never use more foreign oil than we did in 1977 -- never. From now on, every new addition to our demand for energy will be met from our own production and our own conservation. The generation-long growth in our dependence on foreign oil will be stopped dead in its tracks right now and then reversed as we move through the 1980s, for I am tonight setting the further goal of cutting our dependence on foreign oil by one-half by the end of the next decade -- a saving of over 4-1/2 million barrels of imported oil per day... To give us energy security, I am asking for the most massive peacetime commitment of funds and resources in our nation's history to develop America's own alternative sources of fuel -- from coal, from oil shale, from plant products for gasohol, from unconventional gas, from the sun... I'm proposing a bold conservation program to involve every state, county, and city and every average American in our energy battle. This effort will permit you to build conservation into your homes and your lives at a cost you can afford..."
President Jimmy Carter, 15 July 1979

'PEAK OIL'
GLOBAL ENERGY CRISIS LOOMING
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