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Ferdinand E. Banks

Ferdinand E. Banks

Ferdinand E. Banks, Uppsala University (Sweden), performed his undergraduate studies at Illinois Institute of Technology (electrical engineering) and Roosevelt University (Chicago), graduating with honors in…

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More About Oil (Part 1): A Preview of The New Decade

In 20 years I predict energy wars over oil and  gas resources. By the time it becomes politically profitable to react to problems  in the transport energy sector, it will be too late for significant development of alternatives and too politically risky not to fight over remaining supplies.
-LenGould  (in EnergyPulse, Jan. 8, 2008)

I never contemplate the 'details' of energy wars, and that means the kind predicted for the future by Len Gould, as well as the one that Alan Greenspan - the  former director of the United States central bank (or Federal Reserve System) -  believes began in 2003, and to a limited extent is still taking place.  For what it is worth, I have often preferred Dr Greenspan as a jazz musician rather than an economist, but even so there is no denying his intelligence, access, and the diversity of his interests. More important, I see no reason to disavow that energy wars are possible, and I cannot forget that the brilliant Professor Nicolas Georgescu-Roegen insisted that almost all wars have something to do with natural resources.

Armed conflict over an energy resource is a topic that I failed to consider in  my course on oil and gas economics at the Asian Institute of Technology (AIT), but I was sufficiently alert to discuss a bizarre oil forecast for 2030 that was circulated earlier by the International Energy Agency (IEA). Their estimate - since adjusted downward  -  predicted a consumption of  121 million  barrels of oil  per day (= 121 mb/d) in 2030. When I commented on the improbability of this forecast -  employing what I knew about other production estimates -  the IEA director sent me an outraged mail professing that IEA forecasts were for consumption (and not, as I indicated, production). I found this strange, since almost all energy economics research dealing with oil concentrates on production, but since I never regarded  the IEA seriously, it hardly makes a difference. As my colleagues at Uppsala University have reported, IEA publications are "political documents" designed to placate governments (and firms) that want to give the impression that oil production will remain high, and thus oil prices will be low.

In the lecture alluded to above, I put a linear approximation on a whiteboard at AIT which suggested that with a world output of 121 mb/d in 2030, Saudi Arabia would have to produce at least 20 mb/d. This approximation was based on a peaking of Gulf oil, as suggested by an article in the Oil and Gas Journal; the ongoing peaking of non-OPEC oil if Russia was excluded; and the aggregate peaking of non-OPEC oil about to occur, taking Russia into consideration. I sent this result to Professor Paul McAvoy of Yale University, and he assured me that I was wrong because Saudi Arabia would soon exploit four new fields. Unfortunately, Saudi Arabia appears geologically incapable and/or geopolitically unwilling to obtain a massive output from any new field, and according to the Energy Intelligence Agency (EIA) of the U.S. government, an increase in the oil supply due to e.g. an increased output in Brazil, and various non-Russian regions of the former Soviet Union, cannot compensate for declines elsewhere.

Assuming that the above is correct, or almost correct,  then it is necessary to point out that 20 mb/d is exactly the amount that the Saudi government said  they would not produce under any circumstance. They made this statement approximately 35 years ago, and have repeated it many times since. As noted in my book on oil (1980), I first detected this information about Saudi production intentions in an official U.S. government publication (1979), although I did not attach a great deal of importance to it until many years later.

Several of my students at AIT informed me that they had some difficulty accepting my conclusions about the future availability of oil. This was because I claimed that by 2030 the global production of oil would have peaked, by which I meant that it would have peaked many years before 2030, and possibly as early as 2015. Why not, when the director of the French oil major Total,  Christophe de Margerie,  has repeatedly said that the maximum global oil production will never be greater than 100 mb/d, and apparently challenges any corporate executive or decision maker who believes otherwise to discuss this subject with him in a public symposium. Someone else who finds the IEA projections dubious is professor (of physics) Kjell Aleklett of Uppsala University. He claims that by 2030 the peak will incontestably have taken place, and global oil production will only be 75 mb/d.

About the same time that I came into possession of the U.S. government document mentioned above, I obtained another publication with the same origin.. It showed 'possible' landing zones in the Gulf for paratroopers and marines in case the flow of oil from the Middle East abruptly decreased, and a military option was deemed necessary by one or more oil importing countries.  Professor Douglas Reynolds of the University of Alaska also has some acquaintance with those materials, and according to him Dr Henry Kissenger had discussed the possibility of military intervention in one or more periodicals.

Landing zones in the Gulf is a topic without interest for me, but if it was I might stress that Alan Greenspan  was once the most important financial bureaucrat in the world, and he  made the following statement in his widely praised book (2008): "I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil" (page 463).

A comment is in order here, because there is a difference between the "everyone" a single individual (and his network) think that they know, and the everyone they actually know. Dr. Greenspan has a better grasp of energy realities and economic theory than most members of the financial community. He fully comprehends the role of energy in the global industrial/commercial structure, and especially the crucial significance of oil and gas. Accordingly, since the amount of easily producible oil available in Iraq is very large, he might have concluded that if the kind of people he meets socially and professionally were capable of performing a cost-benefit analysis, they would accept that another war in that country was well worth the trouble, even if they did not express this belief in public.

By. Ferdinand E. Banks, Uppsala University, Sweden

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