Wednesday, April 30, 2008

Peak Oil? It's Peak Politics

Interesting article from Irwin Stelzer in the Weekly Standard about how it is political factors that are holding back global oil production, rather than lack of petroleum on this planet.

Examples of this include Iraq and Nigeria, where terrorist attacks and political incompetence is holding back oil production way below capacity. Regulations against foreign investments are similarly preventing potential oil fields from getting started in Russia, Venezuela and Mexico. And in the United States, Democrats along with some Republicans, including John McCain, have stopped oil drilling in Alaska and other parts of America for environmentalist reasons.

In addition to these factors holding back oil production, there is another political factor contributing to making oil extra expensive, at least in the short- to medium term: central bank inflation. Because oil is a commodity traded on global markets, its price is fully flexible and therefore react immediately to central bank inflation. By contrast most other consumer prices are more or less sticky in the short- to medium term and so central bank inflation will cause the relative price of oil to rise.


Blogger flute said...

The writer of this article seems optimistic and not well informed on production facts. Opening up new fields will not substantially increase world production, because remaining known fields are too small.
Nigeria has about 2.8% and Iraq about 2.4% of total world production. Even if their political problems are suddenly miraculously solved, it would take years to get their production up by any number that would meaningfully increase total world production.
Instead, you have to focus on the largest producers. Saudi Arabia (12.6% of world) has been more or less flat over the last years, and even if they say they could produce more, which many experts doubt, this might be just political talk. Even George Bush recently questioned their ability to increase production. Russia (11.4% of world) has now started declining. USA (9.8%) has been in decline for a long time. Mexico (4.4%) is in sharp decline, and contrary to what the article implies, they have used the latest technology to extract more. This is actually the reason why their decline is so fast. Venezuela's production rate cannot be increased very much by using better technology, due to the nature of their reserves. The North Sea peaked years ago.
If so many of the largest producers are in decline due to physical reasons, improvements in the political situation in some countries or opening up new fields will only have the effect of compensating the overall decline and maybe keeping world production flat.

10:51 AM  

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