Sunday, June 27, 2004

Tom Friedman puts himself in timeout

Tom has decided to take a sabbatical. I guess if you are wrong 50 times in a row you need a mental health break to keep your sanity. However, in today's editorial he addresses some issues dear to my heart, and brings up some useful statistics. His piece is about "a few of the headlines I'd like to read while I'm gone."

One of the headlines he would like to see is the following:

President Bush Stuns Electorate — Does His Own Version of Nixon to China and Announces Joint Chinese-American Crash Program for Developing Alternative Energies.

Roughly 30,000 new cars merge onto the roads in Beijing every single month. Every day, the newspaper headlines in China are about energy shortages, blackouts and brownouts. U.S. officials estimate that 24 out of China's 31 provinces are now experiencing power shortages. China's foreign policy today consists of two things Taiwan and searching for oil. China's oil imports jumped last year alone by 30 percent. This is not a healthy situation.


Developmentally, China's growth is soon going to be restrained, if it isn't already, by a sheer shortage of energy. Strategically, China and America could soon find themselves in a dangerous head-to-head competition for fuel.

This follows on my earlier post. No reasonable forecasting firm, government, industry, or academic is forecasting that non-OPEC oil has any room for growth in terms of deliverable daily capacity. NONE! ZIP! NADA! The best that can be achieved is to stay flat for a number of years, then continuous decline. Not only that, but most of OPEC has little room for growth either. Believe me, I have looked up close and personal at a lot of West Africa Deep Water plays and they don't give you a warm and fuzzy feeling. Yeah, money can be made there, but we are not talking about millions of barrels a day of production above existing field declines.

Which leads us to Saudi Arabia. How much can they deliver as a steady long term rate. Ten million barrels per day? Twelve million? Fifteen million? No one knows, but there is a lot of talk in expert circles that it is probably closer to 10 than 15.

The point is that even if Saudi can do 15 that will not sate the world thirst for crude. The Chinese are now hooked. They want to mainline this shit just like the Americans. The Indians are trying hard to get hooked too. Demand growth is inexorable. Yes, price rises will mitigate this demand growth, but as you have seen throughout the 20th and early 21st century, people fight wars for this stuff. The more expensive it gets, the more likely people will fight for their fix.