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Has World Oil Production Peaked?
by Bill Powers,
Editor
Canadian Energy Viewpoint
June 1, 2003
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The above quote, by Princeton Professor emeritus Ken Deffeyes -- one of the world’s foremost experts on world crude oil supplies -- should be a wake up call to the entire world. (For more information on Professor Deffeyes and his work please visit his website at: http://www.princeton.edu/hubbert/index.html. The above quote can be found at: http://www.princeton.edu/hubbert/current-events.html). I share Deffeyes’ view that the peak in world oil production is likely to bring about unprecedented hardship to a woefully unprepared world. I also believe that such a watershed event provides smart investors with the opportunity of a lifetime. I have found there to be a great deal of confusion among market observers regarding what constitutes world crude oil production. Most market watchers use a world oil production figure that is currently about 76 million barrels a day. Included in this number is natural gas liquids production, refinery gains and liquids produced from coal and other sources. Worldwide production of crude oil, unrefined oil stripped of any natural gas liquids, is slightly less than 66 million barrels a day. While the differences in total world oil production and world crude oil production seem minor, I believe the distinction is important in understanding the current world oil supply situation. The world has clearly entered its third year of declining crude oil production.
2003 production is almost certain to be down from 2002 levels. A large portion of this decline is due to production declines in several OPEC countries that have experienced political/military crises in recent months. These countries include Venezuela, Iraq, Kuwait and Nigeria. It should be noted that political problems cannot be blamed for all of OPEC’s continued production problems. A significant portion of OPEC’s decline in crude oil production can be attributed to the fact that many of OPEC’s largest fields are aging and experiencing irreversible production declines. Please note that every OPEC country, with the exception of Algeria, experienced crude oil production declines in 2002.
2002 OPEC Member Average Oil Production
Iraq’s Oil Industry Fails Restart Many market observers still believe we are heading for much lower oil prices once Iraqi production is put back online. This theory is quickly being discredited. The world is rapidly becoming aware that the oil industry in Iraq is a disaster. The following was excerpted from a May 9, 2003 Bloomberg News article: “Crude oil rose after the U.S. Army Corps of Engineers pushed back its estimate for the return of normal Iraqi oil production by at least six months. Damage to oil facilities from looting will delay the resumption of prewar output until January, said Tom Logsdon, project manager at the Corps. Iraq pumped about 2.5 million barrels of oil a day, or 3 percent of world supply, before the U.S.-led invasion in March. The U.S. today will propose to the United Nations that sanctions against Iraq be lifted. ‘There is some oil in storage but nobody has the authority to sell it,’' said Mike Fitzpatrick, a trader with Fimat USA Inc. in New York. ‘Most of the oil industry is not functioning.’” (Italics added)
Boric Acid and Natural Gas I first became aware of the corrosive effects of boric acid, which is used to absorb the extra neutrons in nuclear reactors, when the Davis-Besse nuclear reactor near Toledo, Ohio was shut down in March 2002. During routine maintenance on the reactor, workers at Davis-Besse found that boric acid had nearly eaten a hole through the six-inch thick stainless steel liner that holds the water used to cool the reactor’s core. The General Accounting Office has launched an investigation into whether the Nuclear Regulatory Agency was negligent in its inspection of Davis-Besse. In March 2003, the large 1,250 megawatt South Texas 1 nuclear reactor near Houston was shut down when it was discovered that boric acid had corroded the reactor’s lining. Recently, two other reactors have been shut down after they were found to have cracks and corrosion-related damage. Sixty-eight of America’s 103 nuclear reactors are similar in design and account for 10% of the country’s generating capacity. All four shut down nuclear reactors will remain off line until further tests have been completed. The Loonie Makes a 5-Year High On May 19th the Canadian dollar hit another 5-year high against the US dollar. One US dollar now buys $1.36C of Canadian assets. It appears that foreign investors in the US are rapidly loosing their appetite for holding US assets. The US dollar has been steadily falling against the Euro, the New Zealand and Australian dollars since the beginning of the year.
The
rebound in the currencies of the countries that produce commodities and
precious metals will gain significant attention as the central banks of
the EU, Japan and the US continue to print money (think of Fed
Vice-Chairman Bernanke’s printing press) and ruin their currencies.
The most basic law of economics dictates that the more of
something there is, the less it is worth.
Commodities and precious metals will soon be seen as the only
true way to store wealth since a bureaucrat cannot create more through a
few keystrokes. Chart courtesy of www.stockcharts.com
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INFORMATION Information presented in this newsletter was obtained from sources believed to be reliable, but accuracy and completeness and opinions based on this information are not guaranteed. Under no circumstances is this an offer to sell or a solicitation to buy securities suggested herein. The editor may have an interest in the companies mentioned. All data and information and opinions expressed are subject to change without notice.
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