The Charm of Zapata George

He knows that peak oil is the real deal and that OPEC are covering their tracks with production cuts.
We are headed for a economic crash, yes, but commodities, due to world growth, fiscal policy lead investment demand in infrastructure and most significantly embodied energy content and implied future costs of production, are going nowhere but up when deleveraging is complete and a massive move down in the US dollar kicks off.

Zapata George keeps it simple. He's the man on oil.

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A recent release by the International Energy Agency (IEA) – they’re year end report – was quite interesting. What was significant was their reversal of form when it comes to Peak Oil. After repeatedly trying to convince us that all is well in the land of cheap oil, they’ve now jumped from a horse riding full tilt in one direction to the back of another horse running in the complete opposite direction! (Do you think someone over there has been listening to me?...ha!) In our full radio report this weekend, we will discuss this report more in full, but I wanted to share their opening remarks with you now:



“The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable - environmentally, economically, and socially. But that can - and must - be altered; there’s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.”



Isn’t this what I’ve been saying all along? Guess I was right…maybe?



It’s important, I think, to understand a little about the output of the world’s oilfields. Only 1% of the top 5 oilfields in the world are of the “super-giant size” and the majority of all of these fields has peaked and turned to the downside.







The important thing to know about an oilfield or a country that exports oil is when the peak oil production occurs. The discovery and number of barrels available for eventual production, which they calculate up front – a calculated guess, really – has no bearing on the number of barrels actually produced.



There are also a number of reasons why some fields last longer than others. Some fields are managed well and nursed along to a pretty consistent production output. However, some countries hit their resources hard, because they want the revenue. Take a country like Nigeria…you get a new ruler who three days ago was just an ambitious soldier, and the first thing he wants to do is stuff his bank account in Switzerland. He cranks up production to drain off as much as possible before the next coup hits and a new ruler kicks him out. Then the new guy does the same thing. No thought for sustainability…just greed.



However, the fields owned by the big companies, Exxon, BP, Shell, Conoco, Chevron, etc. are in general better managed and we can learn much from them. The decline of those kinds of large fields is approximately 4.7 percent per year. With a daily production rate of approximately 85 or 86 million, 4.7 percent of that comes out to about 4 million barrels a day per annum. So once you’ve peaked, the decline will be about that rate. Well, there’s four quarters so it is my contention that we are making a decline rate of 1 million barrels per day per quarter. I also believe that the recent announcement that OPEC was cutting production about 4.2 million barrels a day confirms my decline suspicions. What’s’ happening? They’re saying “Oh, the price is too low. We’re going to cut production.” What they’re really doing is that they’re covering their tracks. They know they’re going to see a decline in output that they can do nothing about so they’re going to claim that it is voluntary, rather than being imposed on them by Mother Nature. This is a complete cover story that has nothing to do with reality.



Okay, so the IEA says that the energy system of the world is at a crossroads. They have never, ever used that kind of language before. They’re right. We are truly at the crossroads and in my opinion, if we had not had the economic slowdown and decline in consumption, we would already be feeling the effects of Peak Oil. We will surely feel them in the coming two quarters. The question is, what can we do about it? What are our alternatives? The lead time on effectively developing biofuels is measured in decades, not years, so we’re already behind the curve on that resource. What are our other options? Please turn in to our Radio Show on Free Radio Zapata George this weekend as we discuss this report and what it means for us over the next few years. I thank you for your time, and hope you’ll join us."

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