Bill Totten's Weblog

Friday, November 26, 2010

Why the Pentagon is Pessimistic

About Peak Oil

´╗┐by Matthieu Auzanneau

Many thanks to Energy Bulletin for the translation.

Le Monde (November 18 2010)

Twilight in the Desert (2005) is a book summing up the arguments of a Texan oil banker who suggests that Saudi Arabia is overestimating its future oil production capacity. I've learned through the American Department of Defense that this book is the source of two recent Pentagon reports envisaging a severe lack of oil starting in 2012 and continuing until 2015 at least.

[Matthew Simmons, who wrote Twilight in the Desert, published in 2005, died in August at the age of 67. His analysis remain a major piece of the peak oil debate.]

According to the thesis developed in Twilight in the Desert, the official numbers published by Saudi Aramco, the national Saudi oil company, highly overestimate the true level of reserves that the largest world oil power is capable of extracting from its soil. As a consequence, according to Matthew Simmons, the Saudi oil production will no longer increase, and could even be on the point of a drastic reduction.

The advisory staff of the American armed services seems to consider the fears of Mr Simmons as well-founded and credible, and based on this, the staff has produced a prognosis of a "severe energy crisis" that is potentially inevitable.

Two biannual reports, having appeared in 2008 and in 2010, describe the "environment" of the American Joint Chiefs of Staff [translator: "inter-armed service forces" in the original] (the JOE reports stand for Joint Operating Environment). They occupy an important place, in this reporter's opinion, among the recent analyses recognizing the eventuality (or stating the threat) of a fall in the world oil production between now and the middle of this decade.

[The simple fact that the reports JOE2008 and JOE2010 come from the advisory staff of the joint chiefs of staff confers on them a certain importance. The US armed forces have always overseen (very) closely the provisioning of this great power of the "free world" with Saudi black gold: since 1944 and the past alliance between President Roosevelt and King Ibn Saoud several days after Yalta, continuing to 1973 and the Yom Kippur war, when the US Navy developed attack plans to get a hold of the Ghawar mega-field the no less vital terminal of Ras Tanura, and when at the same time Saudi Arabia agreed to secretly break its own oil embargo in order to provision the American sixth fleet, which was threatened with its gasoline tank going dry, and ... continuing on to today.]

The 2008 and 2010 JOE reports describe in identical terms a diagnosis that figures to this day to be among the most pessimistic on the question of an eventual structural oil shock between now and 2015. [I was the first journalist to point this out, in April 2010.]

In the Joint Operating Environment 2008 report [page 17 ] and JOE2010 [pages 28, 29], one can read:

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly ten MBD.

Ten million barrels per day is approximately the equivalent daily production of Saudi Arabia.

If in 2015, in satisfying the world's energy demand, there was really a gap equivalent to the Saudi production, the years to come would promise to be extremely delicate with effects spread throughout the world, affecting the economy, politics, and, especially, the military forces.

The 2010 Joint Operating Environment report warns:

A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India.

At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict. One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest.

The JOE2010 authors, published in March, emphasize that this year, due to the financial crisis, "investment in oil production is just beginning to start up again, with the result that production could reach a prolonged plateau".

Such a "prolonged plateau" for world production of oil and other liquid fuels would devalue the assets that were dealt to the economies of this planet. Because the future global oil demand doesn't seem ready for stagnation. The International Energy Agency foresees that this demand would increase by eighteen percent between now and 2035, according to the annual report published by this institution based in Paris, and charged with advising the rich OECD countries.

The JOE2008 and JOE2010 reports don't indicate the sources that enabled them to put out this warning (they don't even mention the names of their authors). Their main author, Joe Purser, Joint Futures Group director at the US Joint Forces Command, did not wish to reply to my questions.

Nevertheless, Kathleen Jabs, head of the press office of the Joint Forces Command, indicates by e-mail that Mr Purser says "that he had access to a presentation of Twilight in the Desert that Matt Simmons gave to Pentagon personnel in February 2008".

Kathleen Jabs states that the two other sources of the JOE2008 and JOE2010 reports are from data furnished by the International Energy Agency, and from an analysis group in the American Department of Energy, the Energy Information Administration (EIA).

A document of the EIA, described on this blog, envisages a possible gap of ten million barrels per day between oil supply and demand, between now and 2015. A gap identical to the one that appears in the JOE2008 and JOE2010 reports. Nevertheless, the IEA is not basing this on a fall in Saudi production. The supposed gap is due to the decline, between now and 2015, in other major regions of oil production - and that this decline is already widely acknowledged (North America, North Sea), or that is is all but official (Russia, China, Venezuela, et al).

Glen Sweetnam, the author of this EIA document, recognizes that "there is a chance that we will experience a decline" in world production of liquid fuels between 2011 and 2015 "if the investments are lacking", according to an exclusive interview published in March on this blog.

In April, energy secretary Steven Chu refused to comment on the statement of Mr Sweetnam's, his number one expert on estimates for the future.

Three weeks after the publication of this interview, Mr Sweetnam was moved without warning to the National Security Council, the White House strategic planning group charged with advising President Obama. Neither the White House nor the American Department of Energy wished to comment on the reasons for this transfer, in spite of my repeated requests, as well as those of journalist Julia Harte, from the American site SoveClimateNews.

A think tank of military experts close to the White House published a study in October that emphasized the necessity for the American armed forces to exit from petroleum between now and 2040. The Center for a new American Century explicitly makes reference to a near-term decline in the world's production capacity in black gold.

A former vice-president of Saudi Aramco, Sadad Al-Husseini, maintains that the world production of black gold will no longer increase, but without stating anything tangible concerning the future production of his previous company.

Several major publications on international economics recently indicated a readiness to take seriously the hypothesis of an imminent and potentially severe energy crisis. For example, the Financial Times web site, which has twice made reference to the interview with Glen Sweetnam, or then again the Bloomberg agency, which has published on November 1 a dispatch providing a rather discouraging analysis of the Morgan Stanley bank.

Bill Totten


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