merits of this discussion (join hands and educate an "ultra-leftist")

dmschanoes dmschanoes at earthlink.net
Mon Nov 10 16:13:44 MST 2003


In response to Ryan's questions-- I have to agree with Brother Melvin that
the questions are not the real issue at hand-- that is to say the amount of
oil remaining is truly unknown, it can be estimated and in the last 25 years
or so proven reserves have doubled, and most of that increase has come
through the "drill bit" as field life and production levels are extended,
not just accelerated, but extended yielding more oil over a longer period of
time.  This sort of technological advancement is the cure and the disease
for capital.

Certainly oil is finite-- but if production, extraction, and the reserve
estimating process are historical functions-- dependent on economics and
technology-- then we have to focus our attention away from the unknown--
absolute reserves, and back to the known-- the historical, economic, the
social determinants of capitalist production.

The issue then must be approached as an issue of commodity production, of
profit, of cost, of rates of return, of exchange value in order to "make
sense" of the outward manifestations--- price, supply, expansion,
contraction-- of the internal relations of the components of capital, that
is to say wage-labor and the means of production.

Once we begin to look at asset expansion and decline, rate of profit decline
and growth, we can see the unity of oil price manifestations with the
overall terms of the capitalist economy.  And we can see the conflict
between the growth in the means of production and the limitations of the
relations of production, of private property, of production for profit; of a
conflict all wrapped up in the word overproduction.

A comrade sent me one of the posts of Mark Jones for comment-- I had read it
before in the archives.  It concerned the collapse of the USSR and notions
of oil depletion.  I have a few regrets in my life, and one of which is that
Mark introduced himself to me by telling me that I didn't know what I was
talking about and being somewhat of a hothead, and believing in the virtue
of payback,  I gave it back to him in spades.

I found the article now, as I did then, interesting,  presenting a more
sophisticated analysis of the situation than the usual Hubbertist
presentations, mostly because Mark does not disregard the economic, social,
inputs into the issues of depletion.  Still, I think Mark was wrong.  He
makes it clear, in stating that 1987 was the peak for USSR oil production,
that  1986 is a critical year.  Indeed it was.  1986 was the year of the big
price break in oil. This led in the US to the collapse of the S&L industry,
the bankruptcy of not an insignificant number of rich Texans (including the
former governor and US Secretary of the Treasury) and put the irons in the
fire for the first war against Iraq.  In the USSR, this drove the government
to push production of oil even harder in the attempt to garner more hard
currency to paper of the huge holes in agricultural production, freight
transportation, etc.  The Soviet petroleum production apparatus was
literally run right into the ground.  But it was overproduction, on the
global scale, that determined this collapse, not the depletion of reserves.
Russian production even without the inputs of the Central Asian Republics is
on the upswing, although the damage to the fields in the 1986-1994 may never
be totally mitigated.

Inevitably, in this discussion of oil, we always come to the issue of
capitalization of the industry.  Based on forward looking projections,
grandiose numbers are floated for the cost of future production.  After
OPEC1, in 1974 Business Week was banging the tocsin, warning that capital
requirements for the oil industry  to meet anticipated 1985 demand was 800
billion dollars!  Well we read 800 billion dollars today and laugh.  So do
the oil majors.  But what happened up until 85-- we had OPECs 1 and 2, and
we had tremendous overproduction of oil, beyond the real demands of the
economy, so much overproduction that supertankers, built specifically to
move the oil to market were being used as floating warehouses to keep the
oil off-market.  And severe, I mean draconian destruction of assets took
place, rig counts dropping by more than half.

On October 29, 2003 the Financial Times ran an interesting article about
Mauritania's anticipated entry into the world of oil producers with the
coming online of the deepwater Chimguetti field.  The field is expected to
produce 50,000-70,000 barrels a day over its life of 12 years.  Costs of the
rigs and pipelines to extract the oil are about 400,000,00 dollars.  So
let's do an exercise, using a  simple production curve.  Let's ignore, for
the moment, the cost of labor involved in this production and lets add
another 400 mill for the cost of material, upkeep, replacement, improvement
of the physical plant of production.  And let's run this out over the 12
year course of the production curve.

So year 1: 5000 b/day= 1.825 million barrels; year 2: 15,000 b/day= 5.475
million  3: 10.95 million 4: 16.425 million barrels .......   7: 70,000
barrel a day PEAK, 25.5 million barrels ......... 12: 5000 b/day= 1.825.

Total production from the field      212,500,000 barrels.  Now this makes
the average cost of production (minus labor) about $3.76 (not that far off
from North Sea costs, I think).  But let's look at the 400,000, 000 plus the
yearly cost of maintenance-- if we amortize both over the life of the field
we get a cost demand of $66,000,000-- yearly costs that cannot be paid back
by production at 3.76/barrel until year 3 or 4.  So the investment cannot
pay for itself quickly enough at 3.76 a barrel to sustain the process of
capitalist reproduction because the capital component is so "dear" so
"demanding" of cash.  Profit has to be transferred to the oil production
platform to sustain the reproduction of capital.  And indeed it is.  By
price rises, by OPEC, by the manufacturing of shortages, or the myth of
shortage, or by the army, or by all of the above.

And that I believe, is a thumbnail, crude (pun intended) of the mechanisms
at work here and now.

dms




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