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Web note: Mr. Cooke has graciously offered to include
Chapter 1 of his book, Oil Jihad and Destiny. Energy, and more
specifically oil, is one of the most crucial topics for this new
century. Mr. Cooke was interviewed as a guest expert on Financial Sense
Newshour. It's a great interview and a good read. Interview
Book
Information
Purpose
of this study- The objective
of this research effort was to characterize the size and direction of
the worldwide market for crude oil, including the depletion of reserves
and the impact that alternative depletion scenarios would have on oil
production and consumption. These scenarios were then analyzed in order
to determine their impact on world and national economies, with a
special focus on the United States.
Methodology
- Market or industry research
is a process that involves a number of interrelated steps.
Research reports are based on facts and opinions, which have been
compiled, organized, analyzed and interpreted by someone who understands
the research process. Market and Industry Research is not about
absolutes. It’s about people. Events. Products. Issues. Questions. And
their interrelationship. It has FOCUS. It will deal with a specific
question or issue.
In this study, it
quickly became evident there were three key issues. How much oil can we
expect to produce over the next 20 years? Will Islamic cultural conflict
disrupt oil production? What is the economic impact of declining oil
production?
In order to
introduce the widest possible audience to the very serious nature of
this report, Financial Sense has graciously agreed to publish Chapter 1.
The complete report may be found in book form at Amazon.com or BookSurge.
Ronald R. Cooke
The Cultural
Economist
Oil, Jihad and Destiny
Chapter
1 CRISIS? WHAT CRISIS?
Truth
is reality
The
Secret
Truth is unpopular.
Liberals ignore truth if it challenges
their beliefs or mocks their preconceptions. They are more comfortable
with an adjusted reality that supports their ideology. Conservatives
reject truth if it will force change. They are more secure with
intellectual pursuit that confirms established principle.
Neither philosophy
will like this report. It undermines doctrinaire wisdom and predicts
catastrophic change. Our future reality includes the decimation of our
economic condition and the subsequent decline of human culture. All that
we have achieved, and all that we aspire to, are in mortal jeopardy.
Oil depletion is a
secret. The press typically ignores a problem until it causes a crisis.
By then it will be too late. Politicians are reactive animals. They shun
the topic of oil depletion because it is political suicide to discuss
unpleasant issues. If they acknowledge a pending oil crisis, then we
voters will ask embarrassing questions: Why did you let this happen?
What do you intend to do about it?
And that will lead
to more obfuscation. Neither the press nor our politicians have a clue.
Then there is the
issue of corruption. A thorough inquiry into the subject of oil
depletion would raise uncomfortable questions. Have our politicians been
feeding at the oil money watering trough?
So nobody wants to
point the finger. Not Democrats. Not Republicans. Liberals or
conservatives. Don't rock the boat. Government reports mislead us with
unfounded optimism or ideologically correct misinformation. The
officious pressure of conformist procedure ensures government
bureaucrats will cover for government politicians and academics will
reject meaningful discussion.
Oil, it would
appear, is not a politically correct subject.
But eventually the
voters will find out about oil depletion and the whole Middle East mess.
And then the politicians will have to fabricate some plausible excuse
for their failure to act. Blame it on the President. He wants to spend
billions on space exploration. We can nail him for his failure to
propose a comprehensive energy program. What's more important, we will
ask - a make work program for NASA - or heat for your home? Pretty
pictures of some planet - or gasoline for your car?
Doesn't our
government know how to set priorities?
NO.
But we are
suspicious. We who will suffer. Ominous signs are everywhere. Rising gas
prices. Talk of shortages. Indefensible terrorist activity. A growing
suspicion of Iran, Syria and Saudi Arabia. The threat of conflict in
most of the Middle Eastern nations where oil is produced. An oil crisis
will dump the world's economy down the toilet. Poverty. Unemployment.
High inflation. Kids going hungry. Men desperate for a job. Women
struggling with demeaning depravation.
Doesn't anybody
care? Why isn't energy a high priority subject on the agenda of every
industrialized nation? Why are European and American politicians
avoiding the reality of oil depletion?
Because
if our politicians can keep oil depletion a secret, they don't have to
deal with the inevitable economic and cultural consequences, the
embarrassing questions of failed leadership and the contempt of an
unhappy electorate.
Warning
Fair warning. Oil
depletion. It's coming. Sooner or later.
Maybe sooner than
later. If Islamic fanatics have their way, the oil spigot will be turned
off. So it doesn't matter how much oil sits under the ground in some
pool of reserves. What really matters is how much oil can we actually
produce? And that takes us back to Saudi Arabia. And Iraq. The world's
economy, it seems, teeters on the political stability of these two
countries.
Saudi Arabia is
supposed to have the largest oil reserves in the world. But it is
becoming increasingly clear that this country's reserve numbers are
bogus. And by the way, isn't Saudi Arabia struggling with a growing
political instability that could devastate its oil production?
Iraq? Coalition
troops try to keep the peace. Islamic fundamentalists are determined to
kick the infidels out. Democracy will not work in a land torn by
cultural chaos. Dictatorship and tyranny are the future. Under these
circumstances, how can we possibly believe that Iraqi oil will delay the
inevitable decline of world oil production?
Yes. Oil consumers
have a problem. Big time.
But hold on. We're
getting ahead of ourselves. Before we talk about an Islamist induced oil
crisis, we need a better understanding of the basic problem. Oil
depletion. Reserves. How much of that black gold there is left for us
humans to consume.
Actually we don't
know. How much oil there is in the ground. Or how much oil we Homo
Sapiens can produce. And those who control the information don't want to
tell us the truth. They sell perception. They know reality. They feed us
the big picture to make us feel safe.
There's no problem
- right? They sustain our current level of knowledge. Or is it
ignorance?
I know what you are
thinking. Those damn oil companies. Who can believe them?
But guess what? The
big five oil companies are forced by SEC disclosure rules to be
relatively straight. No. They are not without fault. But the worst liars
in this circus of misinformation represent national governments. It
doesn't matter if a particular nation is a producer or a consumer of
oil. For reasons of selfish best interest, they both fib. Obfuscate.
Hide the truth.
Consumer national
governments are loath to even discuss the truth because - anyway you
look at it - oil depletion is bad news. And national governments do not
like to tell their constituents bad news. That's the way political
systems work. Democracy or dictatorship. Bad news must be avoided at all
costs. It creates anxiety. Conflict. Questions. Opposition. Bad news
always generates a pervasive distrust that somehow the existing national
government is doing something wrong. And eventually the offending
government officials will be blamed for causing the problem. People,
after all, expect their national government to protect them from harm or
deprivation.
Even if that is
impossible.
Producer nations
want to pretend that they can go on producing oil - forever. Oil reserve
information is a state secret. That permits these national governments
to fabricate whatever oil reserve numbers they are pleased to present to
a gullible public. Big reserve numbers allow them to borrow big bunches
of money from the bankers. It gives them prestige and status. But can we
trust any of the reserve information published by - or about - the
nations that belong to OPEC (Organization of Petroleum Exporting
Countries)? Probably not. For example, the reserve gains these nations
claimed in the late 1980s are an obvious fabrication. There has never
been an independent verification that the oil they claim to have
actually exists. And get this - even though they pump millions of
barrels per day, their reserve claims never seem to decrease.
Is there a
credibility problem?
Even Canada has
succumbed to the temptress of misrepresentation. Canada now claims to
have the second largest oil reserves in the world, all based on the
inclusion of its oil sands in its reserve estimates. Oil sands? Doesn't
this ignore the incredible problems of producing oil from sticky rock?
What can we expect
from the IEA? That's the International Energy Agency in Paris. The IEA
is an autonomous agency linked with the Organization for Economic
Co-operation and Development (OECD). The IEA produces the World Energy
Outlook. But wait. Where do they get their data? Unfortunately, it would
appear that the IEA uses the bogus data of producer nations in its
forecasts. And is their outlook influenced by the political bias of OECD
members?
What of the United
Nations? Would the publication of a comprehensive report on oil
depletion tell us the truth? Or would the study bog down in the sludge
of self-serving political posturing?
Our political
institutions have failed us. It would appear that being politically
correct is more important than exposing the truth.
If we can not get a
straight answer from the governments of oil producing or consuming
nations, or even quasi-government international organizations, then can
we get a reasonable assessment of oil depletion data from the oil
companies? The answer is yes. And no. It depends on who you are talking
to and what data is being discussed.
First the good
news. Oil companies listed on any stock exchange in the United States
are required, by SEC and various accounting rules, to make a reasonable
assessment of their reserve positions each year. Oil reserves, after
all, are an important item on the balance sheet of any oil company.
Accuracy counts. As a practice, however, oil companies understate
their reserves. They do not want to be in the position of inflating the
value of their assets. That would be fraud. So they try to fudge a bit
on the low side in order to protect themselves. Most investors are
pleased with this arrangement.
Now the bad news.
Oil companies do not actually own most of the oil they produce. It is
produced under a revenue sharing arrangement with a government agency of
the nation under whose land (or water) the oil reservoir is located. The
oil company has a license or extraction contract. So when an oil company
tells us it has so many barrels of oil in its reserves, that figure may
include assets that are derived from existing contracts. If the contract
goes away, so does the oil that can be claimed as an asset. In addition,
at any given time the oil companies are under contract for only a
fraction of the reserves that may be claimed by the nation that actually
owns the oil.
So this leads us to
only one possible conclusion: there may be less oil on this planet than
claimed (which would be devastating); or there may be more oil than
anyone realizes (which would be very nice).
We simply do not
know.
Or do
we?
That's what this
report is all about.
©
2005 Ronald R. Cooke
The Cultural
Economist
Author, "Oil, Jihad &
Destiny" and "Detensive Nation"
Editorial Archive
CONTACT
INFORMATION
Ronald R. Cooke | 13365 Via Del Sol,
Auburn, CA 95602 | Website |
