Bush Asks Saudi’s to Produce More Oil

If the Saudis could produce more oil, why would they? $129/barrel is a good thing from their perspective. So they offered to increase by 300,000 barrels/day, a drop in the bucket, which essentially amounts to “no”. I don’t think the Saudis can produce significantly more oil. Ghawar is Saudi Arabia’s largest oil field, accounting for approximately 70% if it’s daily output. In 2001, the Saudis started injecting seawater to maintain oil pressure. Now the water cut from many of the wells is on the order of 55%. A point will be reached when the energy required to extract the oil is so great that it will become impractical to continue producing oil from this field and the rate that the water cut has increased suggests that that point is not far away.

There are newly discovered fields offshore in the Santos basin that may eventually replace some of the lost production capacity in Ghawar but this reservoir, like the other newly discovered reservoirs along the South American coast and in the Gulf of Mexico, requires drilling an average of 22,000 feet and the cap consists of 5500 feet of salt which is highly corrosive at the pressures that exist at that depth. This presents significant technological challenges that neither Brazil or Mexico appears ready to tackle.

At the current market rate you had better believe that the Saudis are producing every drop they can. The current high market prices have produced a wealth of new oil discoveries and there is no doubt in my mind that supply will catch up with demand eventually but these types of deep ocean reservoirs typically take 5-10 years or more to develop so this is not going to provide any immediate relief from high oil prices.

The only thing that is going to lower the price of gasoline and other oil derivatives is if we reduce our demand and increase our supply. We have the means to do both but apparently not the political will.

The real solutions are going to come from a variety of sources but all of them take time to bring online, so in my view, we should be pursuing all of them as fast as we can.

There is enough surplus energy on the electrical grid at night to power our daily commute, all that we need to make this possible is a practical plug-in hybrid vehicle. While GM has a concept car called “The Volt”, like most GM concepts it will probably never see production. Their present claim is that the batteries aren’t available in sufficient quantity yet. Meanwhile, a Chinese company is making plug-in hybrid vehicles with a 60 mile all electric range using their own proprietary lithium-iron-sulfide battery technology. I would bet that if GM was given sufficient financial incentives, we could see that plug-in hybrid introduced in the near term.

Even if GM produced an affordable plug-in hybrid tomorrow, people don’t replace their cars overnight, especially in a depressed economy, but it would be a start; lowering the prices, and it also would be an exportable technology which would help reduce our trade imbalance and strengthen the dollar. To the degree which it does reduce oil consumption, it will place downward pressure on the price of oil and upward pressure on the value of the dollar.

If we’re going to make the transition to clean renewable energy we need to find a way to do so that won’t totally destroy our economy and we have to find ways to minimize economic opposition to this transition. To this end, I think we should invest in coal to liquid technologies, and in places where we have natural gas production without an economical method of transporting it, natural gas to liquid. Then, as we displace coal and natural gas from electricity production, we can use this coal and natural gas to make liquid fuels and displace imported oil.

We have to stop the economic hemorrhaging, the money leaving our country and the value of our money from going down the toilet, in order to have the capital resources necessary for new energy infrastructures.

Doing this would reduce net carbon dioxide emission because we wouldn’t be burning that imported oil anymore; and we’d be using coal much more cleanly rather than burning it in a power plant, because the process of converting it to a liquid fuel would remove contaminants like mercury, arsenic, sulfur, radium, etc, and that material would no longer go up a smoke stack and be disbursed across the countryside. Instead, those materials can be recycled and used by industries that need them.

As coal production is replaced by renewable sources such as wind, solar, geothermal, and other renewables, we can start using surplus electricity to produce liquid fuels, especially butynol which can be used as a direct replacement for gasoline, and removing carbon dioxide from the environment in the process.

We really need to ramp up our domestic energy production now; it’s the only thing that we can do that will leave us with enough of an economy to make a transition to renewables and to prevent starvation as food shortages and the inability to move foods to the market, will otherwise price food out of the reach of many people.

Magic financial manipulation won’t save us from $10/gallon gasoline, the only thing that will do that is to produce enough energy to meet our demands, and the only thing that is going to stop the rapid decline of the dollar is a correction of the huge trade imbalance and national debt that we have. Becoming self-sufficient for our energy needs is a necessary prerequisite for peace in the middle east. As long as we are dependent upon the middle east for energy, the financial effects are going to provide the incentives for war. Nothing is a larger environmental or economic disaster than war.

National security also demands energy self-sufficiency. If we are dependent upon the middle east for fuel, pretty soon we’re going to find it difficult to even fly our planes. There is no doubt in my mind that this fact will not be lost on China and Russia, not to mention many other nations that we’ve given good reason to hate us. When they realize that all that is necessary to cripple our military is to disrupt an 8,000 mile long supply line of oil tankers, they are going to feel emboldened. The only defensive option that would leave us is the nuclear option, and a nuclear exchange with Russia would be pretty much the end of civilization.

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