[Marxism] Nader and Peak Oil

Joaquín Bustelo jbustelo at gmail.com
Fri Jun 6 15:08:21 MDT 2008


I'll comment throughout Sartesian's post:

On Thu, Jun 5, 2008 at 7:22 PM, sartesian <sartesian at earthlink.net> wrote:
> Couple of things:  OECD daily demand in BOE/day has dropped  over the
> 2007-2008 period. Demand from China, India etc. has increased, but all
> in all, over the past 50 years the matching of supply and demand in the
> oil markets has been pretty well matched.  My view is that the run up in
> oil prices is nothing other than the commodity equivalent of the run up
> in stock prices during the dotcom bubble.. or real estate values in
> Japan in the 80s and early 90s...

OK, so the position here is that effective demand is independent of
price. Which makes it very hard to explain WHY OECD (mainly, the
imperialist countries)  demand declined. As for the last 50 years,
that's not at issue. At issue are the last three years.

As for the comparisons with the dot-com bubble and the Japan real
estate bubble, there is this difference. The oil future prices (which
is what is quoted) have a very definite relation to the REAL, physical
market prices. Although complicated to execute, one would think if
what Sartesian claims is true (it's all a speculative bubble in the
futures market) someone would have made a real killing in the
arbitrage between futures and physical market prices, in essence,
complying with the futures contract by delivering the (much lower
priced) physical commodity. Or, if the speculative activity were in
the real physical market for crude oil, why one couldn't make a
killing "shorting" oil. To corner the physical market you actually
have to store the oil being withheld from the market somewhere. This
would show up, sooner or later, as an increase in inventories.

The claim that the hoarding is taking place in the form of producers
not pulling it out of the ground, however, is simply another way of
saying that production is not meeting demand, driving prices higher.
Pumping less crude than you could from oil wells does not involve
massive flows of speculative capital in any normal sense of the term.
I guess you could go around bribing producers to curtail production,
but to the extent the scheme succeeded it would cost you more and more
(because of the money the producers could make bringing the extra oil
to market increases) or it would involve a world cartel of all
producers in a position to increase production, but to create an
incentive for such a cartel you do not need the intervention of
speculative capital.

In other words, the nature of oil as a commodity makes Sartesian's
claim that this is another real estate or stock market bubble hard to
fathom.

> Secondly, no less connected a source than James Baker and his institute
> have pointed out how little oil companies have invested in capital
> improvements in relation to previous years, in relation to cash flows,
> in relation to earnings over the the past 7 years.  Cash has been king,
> and stock buybacks have been the king's ransom. I think that explains
> the "flatness" of production better than the peak theory.

All this says is that companies don't invest in increasing oil
extraction because they can't recoup the investment + a normal or
higher-than-normal profit. Far from contradicting peak oil theories,
the thesis that you get into a situation of diminishing returns for
investments in existing fields is PRECISELY one of the pillars of the
economic side of the peak oil theory (the other is that the cheapest
to exploit and largest fields have been discovered, and, on average,
new sources are smaller and more expensive to exploit, something which
has been amply borne out by the data).

Quite obviously Sartesian here has ventured beyond his depth,
presenting as an argument *against* peak oil data that on the contrary
*confirms* the theory.

>
> Thirdly, if the peak were at hand, we would see sustained, dramatic
> increases in the cost of production for oil.  But we do not, not even in
> areas like the North Sea where production has declined in areas where
> extraction is more expensive than the 10 cents to $2.00/barrel costs of
> the Mideast producers.  Statoil of Norway just reported, I  think, that
> costs of production are about $5.00/barrel-- almost identical to costs
> of 15 years ago.

I Sartesian is genuinely so confused that he thinks this is an
argument against peak oil. The argument is NOT that pumping from
EXISTING sources becomes dramatically more expensive, the argument is
that the NEW sources that replace the production of declining fields
are, on average, more expensive. For example, the Canadian and
Venezuelan tar sands projects, which are said to be profitable only at
what are traditionally considered high price levels (I've seen
estimates ranging from $30 to $70 a barrel, but these come from
different times and may well reflect, among other factors, the decline
of the dollar) COMPARED TO the costs that he cites for the Mideast or
Norway.

A similar thing can be said about Brazil's recent deep-sea
discoveries. They are potentially huge, but it isn't clear what price
would make them profitable, and there is even a question whether the
technology exists, or is within reach, that will allow them to be
exploited on a commercial basis.

> Fourth-- Venezuela's scabbing on quotas was hardly the reason for
> $10/barrel oil in 1998.   Venezuela's daily production declined from
> 1980-1992, yet there was the huge price break of 1986.  Venezuela's
> output increased throughout the 90s, certainly, although less
> proportionately than the UK's and Norway's from the "past-peak" North
> Sea fields. Actually, the US bourgeoisie in 1998 were fingering Iraq
> (and Iran) as the "culprits."
>
> Venezuela's production continued to increase under Chavez, until the
> PDVSA management lock-out of 2002 cut production.  Since then,
> production has been restored although not obtaining its 1998-1999-2000
> highs, this more the product of damage to the fields due to the lockout
> than Chavez's policy.
>
> Most significantly, looking at the production of  Russia and the former
> SSRs of central Asia, production in 2005 had been restored to its 1980
> level after the disaster of the mid 90s and is in fact very close to the
> 1986 peak, the year the price break forced the Soviets to literally
> begin working their fields to death...
>
> All in all, don't think peak theory explains any of this.

I agree with Sartesian that the "peak oil" theory doesn't explain any
of this. For one thing, it is easily verifiable that at no time in the
periods under discussion here (2000 and before) was a peak in oil
production reached, followed by a plateau and then a decline. Arguing
peak oil was responsible for this is like blaming a shortfall in auto
production in August on the wintry weather in Michigan.

Nor did I make any such claim. As to whether Venezuela scabbed on OPEC
quotas until 1999, and under Chavez halted the practice, I thought was
common knowledge. Official production figures aren't much use here, as
Venezuela never admitted what it was doing under pre-Chavez regimes
and PDVSA was being run by American interests. However, Sartesian
would then need to explain what all the fighting about control of
PDVSA was about in the first year or two of the Chavez government, and
in particular, why overall control was yanked from the office in
Houston back to Caracas.

Sartesian's point that Venezuela's excess production wasn't the ONLY
factor driving down the price of crude is true, OBVIOUSLY, but it was
a central factor in the breakdown in OPEC discipline/solidarity. As
for the U.S. blaming Iraq and Iran, well, who else? If the price had
been high they would also have blamed them. If the price had been in
mid-range and stable the U.S. would have found fault and blamed Iraq
and Iran. Like, duh...

Blaming Iraq and Iran had ABSOLUTELY NOTHING TO DO WITH how much oil
was produced or not produced. Just like now, no one in the U.S.
questions the right of the U.S. to consume a quarter of the world's
petroleum, it's all China's fault for consuming A LOT LESS than the
U.S. despite having three times as many people.

> And I don't think the rebound impacts are going to do anything to help
> mass transit-- other than to provide good advertising for those areas
> that already have it.  Recession is recession is recession.  Capital
> expenditures will be reduced.  And few things are more capital intensive
> than rail mass transit.

There has already been a marked increase in the use of mass transit.
IF gasoline prices continue to increase, or rather, WHEN they do, and
people become convinced the increases are irreversible, the ruling
class will declare mass transit to be the "new normal" and expand it
massively, unless they've been able to come up with commercially
viable vehicles that are more efficient by an order or magnitude or so
(i.e., a couple of hundred miles a gallon, rather than a couple of
dozen).

> One more thing:  It is very hard to argue that the war, or oil prices,
> creates super-profits that somehow benefit workers in the US, when the
> war and oil prices have been accompanied by reductions in manufacturing
> employment, measurable reductions in worker and "poor" share of national
> income,   reduced social infrastructure benefits-- like health care,
> education, etc.

This is, of course, the anti-Marx, anti-Engels, anti-Lenin revisionist
"theory" that has held sway over much of the U.S. and other
imperialist country left for many decades. It comes down to the
fundamentally absurd statement, contradicted by a mountain of
statistical evidence and even the most vulgar, impressionistic
observation, that working people in imperialist countries do not
benefit from living in the richest countries in the world.

Sartesian's argument is that since war causes economic hardship and
dislocations, how can I claim working people benefit? Well, because
wars are essential to maintaining imperialism as a SYSTEM. Surely
Sartesian should be able to understand that working people in the U.S.
BENEFITED from American imperialism's victory over its rivals (and
also largely over its allies) in World War II even though the
statistics from the war years show no significant benefit, quite the
contrary.

But Sartesian provides a perfectly good example of the way US leftists
tend to argue and what is wrong with it. We say, war means less money
for XXXX right now. That's true. But war means continued US domination
and exploitation of the entire world. The U.S. as a country and a
society benefits over the long haul, either that, or the theses must
be that the U.S. ruling class insists on wasting money on armaments
and foreign military adventures that, on the whole, viewed over a
period of decades, are a net LOSS and therefore WEAKEN it as an
imperialist power.

But the whole thing is silly, EVERYONE KNOWS workers in imperialist
countries are better off, almost immeasurably so, than working people
in the Third World.

Is it so hard to understand that it is this privileged position that
is the material foundation of their patriotism, their religious
acceptance of imperialist ideology, as well as their well-nigh
complete nullity as a class political force in these countries?

The imperialist countries prosper BECAUSE they are imperialist and
transfer value produced throughout the world to their own imperialist
homelands, enriching them, MOSTLY --but not exclusively-- to the
benefit of the bourgeoisie.

In addition, the imperialists use the margin of maneuver afforded them
by their imperialist super-profits to buy social peace at home. That
is unquestionably clear from the immediate post-WWII decades, and I
suggest that the subsequent decades have been a cautious exploration
of how little of the superprofits must be sacrificed to keep the class
struggle in check, rather than a fundamental reversal of this policy
of buying social peace at home by granting workers in imperialist
countries a relatively privileged position in relation to working
people elsewhere.

> So in conclusion, first things first-- we need a much better analysis of
> why and what.  Peak oil doesn't cut it.

So, "in conclusion" -- facts are stubborn things. I gave in my
original post the most authoritative possible figures showing that for
three years of extraordinary, astounding, heart-stopping crude oil
price increases, production didn't increase one drop. This MAY NOT YET
BE the actual, definitive, final "peak oil" moment, but the stagnant
level of production has allowed us to see what economic and social
tendencies will be unleashed.

It isn't clear to me whether Sartesian rejects "peak oil"  as a
scientific theory, or  simply rejects that we are at that point now.
If the former, he should present his scientific/technical arguments.
If the latter, why he thinks my analysis of this being a forerunner
and indication of what peak oil will be like --even if it turns out
this is not yet it-- is mistaken.

Joaquin




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