H-Energy Posting on Peak Oil
The following was sent out today on the H-Energy (History of Energy) Listserv by Lewis Smith, energy advisor to the Commonwealth of Puerto Rico and a a regular commentator on the peak oil issue:
Barbara Currier Bell has asked me to comment on the prospects for crude oil. Since I have two papers in submission, I cant quote them. However, I can make a few points which I and/or others in the "peak oil" community have made on various occasions:
" The coming crunch in crude-oil markets does not depend so much on absolute numbers as on the difference between what consumer would like to consume [potential demand] and the lesser of the following --- the supply
which is physically available and the supply which is politically available. The news with regard to all three components of this equation is bad.
 The future demand for petroleum fuels is highly uncertain because it depends on conservation measures, hybrid cars, national policies, rates of economic development, the resolution of conflicts over "food versus fuel" , technological breakthroughs, the speed with which new technologies can be deployed and other factors. Many of these factors also have uncertain futures. For example, how fast will people in China and India increase car ownership and what will be the average mpg ?
 In particular, the much vaunted "hydrogen economy" will probably arrive in some form or another but not in time to "save us from perdition" . Meanwhile there are some niche uses which can and should be exploited ASAP.
 A critical factor is how much middle distillate ---diesel, kerosene and naphtha --- will be made from non-petroleum sources in the long run. [That number is a real crap shoot.] Diesel is important for construction, heavy land transport, marine transport and emergency plants. Kero is the basis for civilian jet fuel. Naphtha is the major feedstock for military jet fuel and for most petrochemicals and plastics. None of these fuels has anything equivalent to the hybrid car or increased mileage requirements in its future.
 Another critical factor is the speed with which oil-replacing and oil-saving technologies can be "deployed" . That is, how fast can companies [A] put money "in the til" [B] concrete, steel and people on the ground and then [C] complete projects on time, under budget and up to specifications ? [Probably not fast enough. This issue is usually
omitted from discussions of energy.]
 The odds are that physical crude oil capacity is going to peak soon enough to cause trouble. More important, the odds are that the subsequent decline in production will be steep rather than shallow. If so, this means a worldwide recession and maybe regional wars. [For the record, the writer foresaw the midterm proximity of the Middle East War and the invasion of Iraq, but not the years in which these started.]
In evaluating the above, please keep the following in mind ---
 Industry data is bad --- full of errors, inconsistencies, omissions and just plain lies. Trying to find the true story can get you killed fast. So any forecast of the year in which world crude-oil production is going to peak is highly speculative. [For the record, the writers favorite is 2010.] Nevertheless, there is enough good and mediocre data to
fully justify assertion  above.
 The industry has known all this for a long time, but nobody worried about it. This was because production kept growing, producers kept exaggerating and everybody thought the Middle East was an endless cornucopia. Well it isn't, no matter how many full-page ads Exxon takes out.
 Water will soon become the biggest problem in the Middle East, even bigger than the present biggest --- Israel and Palestine.
 Sinking a few supertankers in the straits between Iran and Oman could bottle up most of the oil exports of Iran, Iraq and Saudi Arabia and all of those from other Persian Gulf countries. Iran has the missiles to do this, even though it is not nearly as close to having an atom bomb as it or the American imperialists would like it to be.
 The worldwide network of terrorist networks has more terrorists and more sympathizers than it did on 09/11, although its popular support has declined in some specific countries, such as Egypt, Iraq, Indonesia and Jordan. Since 9/11 USA has helped this process along by writing a textbook on how to alienate friends and make enemies.
 Crude-oil markets do not behave like textbook markets. For example, even for well traded "baskets" of crude oil, such as "West Texas Intermediate", there is no single equilibrium price and over a decade, the market price may spend more time above its equilibrium range than it does either within it or below it.
 The life-cycle cost of most Middle Eastern crudes probably lies between $2.00 and $12 per barrel, freight on board the port of export, that is, including a return on and recovery of the capital investment required to find, extract and transport the oil. Even the incremental cost of finding crude oil in the USA is probably no more than $26 per barrel.
 With WTI fob Cushing OK at $68 per barrel, producing countries are enjoying gross margins unlike anything ever seen in the economic history of the world. Conventional economists quaintly call this difference "economic rents" . In theory, such differences are not supposed to get nearly so big nor last nearly so long. In most cases, they are supposed to be quickly "arbitraged" away. What are these economists going to tell their students next semester ?
Lewis L Smith