February 26th, 2012

In the industrialized world it is no secret that “oil” impacts every single aspect of the lives of its population, whereas our food line is part of it, along with our clothing, electronics, and hygiene products along with nearly 100% of our transportation needs – in other words take oil off the table and our lives would be severely disrupted. With this in the back-of-your-mind, wonder no more why the oil giants on our planet like ExxonMobile, BP, Total and Royal Dutch Shell haul in those embarrassing profits year in and year out, making other corporation across our Blue Marble look like the corner Bar and Grill when it comes to their cash intake. Since the global economy has of late become a topic of concern, we must remind ourselves that our current global economic model is based on “continued growth”, which is primarily based on “cheap” energy. Experts in the field of energy tell us that “fossil fuels” run around 84% of what we consume in our demand for energy, and oil is 35% of our primary consumption of energy. Understanding just how much oil affects our daily lives and the global economy, the next step would be to determine just how much of the “black gold” we have left lying about beneath the ground and our oceans. You want to see a “stock market crash”, pull a few billion barrels of oil from our daily needs and watch the economic house of cards fall flat or far below its present value. This is especially true today as some predict that the “carbon bubble”

trail we’re on today will make the housing bubble and our current debt crisis look and feel like schoolyard antics. In all seriousness the experts really don’t have a true picture of the “reserves” of that black stuff, where it is impossible to garner accurate figures from the 12-member countries of the Organization of the Petroleum Exporting Countries (“OPEC”) – where as part of their internal top secret agreements, they established a quota system 25-years-ago that plays willynilly with the numbers. members to follow suit. Over the past decade or more all of the Middle Eastern Gulf countries have over-stated their reserves, causing its other

Proven Oil Reserves -2009 80% of the World’s Proven Reserves are in OPEC countries, with 65% in the Middle East

Why would they “stretch” the figures? Simple their oil production is based on the number they report, of the actual reserves they’re pumping from beneath the ground. Along this line observers outside of the sacred halls of OPEC agree that their numbers of overstated, this to insure, based on their internal quota system, that the bigger the reserves, the larger your quota. Although as a whole the world understands their overstatements, what can it do, where with bigger reserves they become the world’s biggest drain on any growing economy, and smile all the way to the bank, or some other hole where they stash their revenue.

Most of you probably won’t recall about the scandal in Kuwait a few years ago when someone “leaked” a secret government study that reported the Kuwait’s reserves were 50% of what they had been reporting, in response the government of Kuwait went into lock-down mode and refused to answer any questions concerning the “leaked” information, zip – nada! Kuwait is only one of the OPEC members consider that there are eleven others that have been juggling their books to look good. The others, 1) Algeria 2) Angola 3) Ecuador 4) Iran 5) Iraq 6) Kuwait 7) Libya 8) Nigeria 9) Qatar 10) Saudi Arabia 11) United Arab Emirates 12) Venezuela Out of the 12, six account for more than 80% of OPEC oil, Saudi Arabia, Kuwait, Iraq, Iran, United Arab Emirates and Venezuela – and all of them have “jacked up” their reserves by 100% between 1984 and 1988. Where according to those who make their livelihood from such numbers, this increase took place when the members of OPEC changed how they set (established) their production quotas. Since that time, Saudi Arabia for example, their reported reserves have “flat-lined” since 1988 – in other words they have not changed their reserve amounts – yet they have produced some 96 billion barrels of oil between 1980 and 2010. Today it appears that some of the OPEC countries are “underreporting” their reserves, in order the “jack up” the cost per barrel, a situation that will sooner or later create an economic crash. At the OPEC website they report, “according to current estimates, OPEC member countries have made significant additions to their oil reserves in recent years…As a result, OPECs proven oil reserves currently stand at well above 1,190 billion barrels.” totals. In addition according to the OPEC reporting mechanism its countries have added around 347.2 billion barrels to their In this they “claim” they have the ability to meet the forecasted

growth demand “for decades to come,” and estimates that their “ultimately recoverable reserves (“URR”) have increased over time due to technological advances, enhanced recovery methods and new reserve development.” Nay-sayer’s on the outside of OPEC are making the observation that countries such as Iraq, Kuwait, UAE and Iran have hit their production “peaks” and have been producing at the same levels. Where Iraq’s production is nearly flat-line since 1988 with its “peak” production year in 1979, and Kuwait has largely flat-lined since 1988 with its “peak” production year in 1972. The United Arab Emirates (“UAE”) has maintained the same level of production since 1988, while having a recent “peak” in 2006 – and Iran had a flat production level from 1988 through 2000, with a minor increase in their reserves, with their “peak” production year in 1974. In Venezuela, Hugo doubled the reserves in 2008, increasing the reserves a bit more in 2009, yet they still have not attained their “peak” production rate they enjoyed in 1970. Therefore, all the leading OPEC producers seemed to have reached or pasted their “peak” production, and they account for 67% or more of the world’s oil reserves – in other words it is fruitless to believe that stuff you pump into your favorite vehicle will ever fall below $2.00 a US Gallon nor that diesel they pump in those long-haul rigs that transport your food and other “stuff”. When you bounce around the “bottom line” it stands to reason that the OPEC nations are going to do everything in their power to draw from the global economy while they can, whereas it appears their reserves are far below what they have been reporting.

Most of the World’s Oil Reserves are Non-Conventional

In other words OPECs rate of production is a lot more important than what they report as their reserves – such as how can Saudi Arabia produce 100 billion barrels and their reserves don’t change at all. It is also no big secret that the demand for the “black gold” is increasing daily, where even if the demand remained static it is estimated that by 2030 the world will need the equivalent of four Saudi Arabia’s to maintain its present production, and to keep up with the present demand rate at least six Saudi Arabia’s – in this some experts say that the OPEC quotas are no longer relevant as in the future (tomorrow) “everybody just produces as much oil as they can or that is prudent to extract without damaging their oil fields. The Saudi and Iranian oil fields are getting old and should start to decline in the next decade. The Saudis just announced that they will not be increasing their capacity, except for natural gas. A lot of people are starting to lump in their natural gas production along with their conventional oil. It is called ‘barrels of oil equivalent’. Exxon has been doing this for years, as they pretend their output is increasing.” In words you and I can understand, the oil industry like most politicians finds it hard to tell the truth. Along with the cold hard fact that the true oil reserves for many if not all OPEC members are heavily guarded “state secrets”. And then we have the “un-conventional” or “non-conventional” oil such as “tar sands”, where technology continues to “blur” the distinction between conventional (easily processed) and non-conventional oil. OPEC claims that they expect to increase their URR numbers in the future, thereby stating that their issues are not “reserve availability” but timely “deliverability”. BP refers to URR as “an estimate of the total amount of oil that will ever be recovered and produced,” in this the massive field of the Canadian Tar Sands are wrapped up in their predictions. Lately with the political world being environmentally driven decisions in the United States, the Alberta tar sands have become infamous due to the fact that it is dirty oil and very energy-intensive to extract conventional oil along with the environmental devastation created during its processing.

Tar sands (bituminous sands) are oil sands of loose sand or partially consolidated sandstone containing natural mixtures of sand, clay and water, saturated with “dense” and extremely “viscous” form of petroleum technically referred to as “bitumen” or tar. Natural bitumen deposits are reported in many countries where in Alberta, Canada there are some extremely large quantities. There are other deposits in Kazakhstan and Russia, estimates put the total world reserve of natural bitumen at 249.67 billion barrels, of which 176.8 billion barrels are in Canada (73.5%). The United States (mostly in Utah) has around 32 billion barrels a little over 13% of the World’s reserves. Canadian officials classify their oil sands as “petroleum that exists in the semi-solid or solid phase in natural deposits”. The World Energy Council (“WEC”) defined natural bitumen as “oil having a viscosity greater than 10,000 centipoises (A centimeter-gram-second unit of dynamic viscosity equal to 0.01 poise) under reservoir conditions and an API gravity of less than 10º API”. In general bitumen is a thick, sticky form of crude oil, so heavy and viscous (thick) that it will not flow unless heated or diluted with lighter hydrocarbons. As the media shouted the news of President Obama not agreeing with the push for a pipeline across sections of the United States, unless a new plan was exercised, the public has drawn more political lines in the “sand” being either pro or con in the USAs plan for energy independence from OPEC. Some, regardless of the fact that processing this heavy and thick nonconventional oil uses extraordinary amounts of energy for steam injection and refining, and the fact that its production produces 2X to 4X the amount of greenhouse gases over conventional oil production, point a stiff finger at the sitting President as abandoning the countries march towards energy independence from the Middle East. Nevertheless, if combustion of the final product is included and the so-called “Wells to Wheels” approach is used, the

oil sands extraction, refining (upgrade) and use the tar sands overall emits 10% to 45% more greenhouse gases than conventional crude. Scientific and environmental critics of the tar sand extraction also argue that the oil companies’ glowing forecasts of how much oil can be recovered, along with how long it will take to extract are bordering on the edge of “fantastic” or the Wizard of Oz world. Experts in Canada tell us it took 40years to get the tar sands to 1.5 million barrels per day in 2010, and ask what the region would suffer if they were to increase that total to 4.5 million barrels per day in 25 years. It has also being pointed out that 90% of the government reported 143 billion barrels are too deep for surface mining, whereas huge energy inputs will be required to reach the 90% (129 billion barrels). The word on the street is that the companies involved are selling massive loads of hype to their stakeholders, where as they work towards the 129 billion barrels the return on investment will diminish, that is unless these select companies can persuade the consumer to pay more for a gallon of gasoline – say $10. In other simple words, the mining and extraction of the tar sands “can’t be ramped up enough to offset the declines in conventional oil”. As for conventional oil, remember the country where GWB and his oil buddies put on that tremendous show of “Shock and Awe” over the supposed manufacture and storage of WMDs, well as it turns out even though Iraq says they have 143.1billion barrels of oil reserve, it has never been fully surveyed for its oil. Although recent analysis of 2-D seismic data produced threedecades ago is showing that Iraq has a reserve of more than 350 billion barrels, but as a result of its military occupation and the on-going political unrest the official reserve numbers haven’t been revised since 2001 – at 350 billion barrels in reserve it will be the world’s largest oil reserve – now you know why GWB twisted some facts around and we invaded the country, as Iraq will be the only place in the world where “cheap” oil can be found in great quantities. Iraq as one of the founding members of OPEC finds itself in a position where it has growing production, contracts with foreign oil companies (at $1.4 a barrel extracted to the government) that call for the increase in production in huge amounts, but in the background tangled in between the political, ethnic,

tribal, and religious differences they have unsettled relationships with Saudi Arabia and others who have unsettled relationships with Iran. Where it appears that Saudi Arabia and Iran want to maintain their roles, albeit Iran is struggling for many reasons to maintain their oil production –along with all this is Iraq’s push to reorganize as a “new sovereign nation”, over the horizon expect some very interesting oil “politics” to emerge in the Middle East. All this drags along the phenomenon often referred to as “peak oil”, or the point in our industrialized economy where the maximum production capacity of oil is reached. We all know, reading daily about the price of gasoline shooting upward that, “Peak oil is the time when the world’s production reaches the highest point, then start back down, whereas oil is a finite (limited) resource, and it someday will go own.” The International Energy Agency (“IEA”) in 2011 increased its forecast for average global oil consumption to 89.5 million barrels per day, an increase of 1.2 million barrels per day over 2010. In 2012 they expect to increase it to 91 million barrels per day, around 2.77 trillion per month. Consider the state fact that over the last six years oil production have been pretty flat, this the experts say is that “peak oil” may have already arrived. If not, we’re getting pretty close to the figure that some observers say is the highest possible level, some even predict we’ll reach “peak oil” production in April 2012. Although a number of economists tell us that the global economic crisis is a factor that will in no doubt change that evaluation, where some nations can not import oil as the rates they used to because of its increased cost – in other words the economic depression will systematically reduce oil demand. One gentleman said, “Peak oil production may come soon because nobody, outside of the oil exporting countries which subsidize the stuff, can afford what they are using today – it may not be geological constraints that causes peak oil, but economic constraints”. Simple translation, expect some highly inflammable geopolitical events shaping up”! Today we see in the news that Iran is using its oil as a political tool in stopping oil shipments to Europe, in its response to its nuclear development. No matter that just a few weeks ago their oil minister Rostam Qasemi said that, “we don’t consider crude oil as a political tool. However, if necessary we’ll use it any way we need. A disruption in Iran’s oil can certainly have an effect”.

Despite the global economic slide, countries such as China (1.33 billion souls) and India (1.21 billion souls) continue to see an increasing demand, whereas in China the world witnessed their increase in 2011 of 10.4%, with India following suit. The United States continues to be the leading oil hog, as it imports more oil than China’s total energy consumption – where per capita it uses 23 barrels per person (7,200,937,612 barrels) per year while China uses just over 2 barrels per person per year, (2,807,107,832 barrels or only 39% of the United States total). The USA consumes 5X the world’s average, and 66% of the world consumes lower than the world’s “mean per capita average”, a situation that creates a huge inequity that is raising numerous discussion concerning geopolitical issues, especially in the upcoming Presidential election in the US in November.

Oil Import Numbers for the USA

It is a fact that people around the world are consuming more oil than ever, and the demand is increasing daily, coupled with oil we are beginning to realize that the “infinite growth paradigm” of economic growth is grinding to a close, and that in the industrial world oil production has reached a plateau,

thereby increasing the fact that “peak oil” and “economic stagnation” might just go hand-in-hand – you think? Economic experts along with their oil experts tell us, “this is an ugly situation. What you’re going to see now are volatile oil prices. Spikes that will impact the economy, then demand will fall like it did in 2008 in the United States, and the price will drop for a while. But eventually it will become a matter of physical supply, and that is when things get really serious. And the United States, as a super-power with global bases, is also importing 60% of its oil, so I think it’s going to be very difficult to secure a supply with ugly geopolitical things happening”. It is predicted that “oil wars” will increase dragging along the economic crises from their actions, where it is said that this will play out over the next decade or more. Consider that when Libya’s oil production dropped off-line the world burned more oil each day than it was producing, thereby depleting world oil stocks. Now we have the EU debt crisis and the Iranian standoff as our top concerns – translation by some is, “the EU will not be able to rewrite the agreement, meaning that we should have a worldwide depression in the next year or so sending oil prices down…then we have Iran – nobody in their right mind wants a war, but there is a huge amount of room for miscalculation in this situation. If anybody starts shooting, prices will go way up and demand will go way down. ahead”. It is going to be an interesting year

The drumbeat of war with Iran grows steadily more intense. Each day brings more defiant rhetoric from Tehran, another failed UN nuclear inspection,

reports of western military preparations, an assassination, a missile test, or a dire warning that, once again, the world is sliding towards catastrophe. If this all feels familiar, that's because it is. Iraq!!

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