The one thing that I have been emphasizing with my readers is the onset of something known as peak oil. Although everyone knows that the globe gets the majority of its import oil from the Middle East, most poorly appreciate just how much of our conventional reserves actually reside there. We all know that the largest single conventional reserve is in Saudi Arabia. What few appreciate is that number 2,3,4 &5 are not that much smaller and are all in the same Persian Gulf Basin. This means that the bulk of conventional reserves are in the Persian Gulf.
What is more important, is that they have all been exploited for decades and are all past peak or at least certainly appear to be. They are also easy to exploit, so there should be little recoverable residual oil to go after in depleted fields. The only remaining mystery is to what degree the owners are not disclosing field performance. This is a contentious issue and a serious concern and certainly, no one believes that they are telling the truth, particularly when they change quoted reserves at a whim. However, with the Saudis essentially cutting production, it is a very good bet that increases are now impossible.
Looking at the combined reserves in the Middle East it is hard not to believe that an increase is merely a snap of the fingers away. But it is not. Oil fields must be pumped slowly or they will physically deteriorate. And these wells and fields have been carefully managed for a long time and are certainly maximized.
I am reminded of a very greedy stupid individual that I knew whose brother bank financed the acquisition of a very productive gas well in the USA. He then proceeded to kick his brother out of the deal and then took over management of the well. It was a moment's effort to crank up the production rate to accelerate the payback. It took three days for the the well bore to become sand packed, cutting of all production. There was nothing to say after that.
The only other great exploitable oil resource readily available is the Alberta Tar Sands, similar in scope to the whole Persian Gulf and probably much much larger. I also suspect that we have not heard the last word of the conventional reserves of the related Mackenzie basin. But like the heavy oil reserves in the Amazon, access is a true bitch. Right now you have to be utterly determined and be prepared to operate in conditions similar to the North Slope over road less rugged terrain in the dead of winter.
The Alberta lands are much more accessible and the necessary infrastructure is already in place permitting incremental additions to production. This is why THAI is so utterly important to the future oil supply situation.
It turns an unconventional bitumen resource into a near conventional resource, although I can hear the howls of oil men everywhere. The fact that the successful use of a burn front adds value in terms of upgrading the production fluids while also obviously utilizing the production CO2 to mobilize the oli is an elegant resolution of an impossible problem. That it actually appears to be working is a modern day miracle. When I first saw the proposal, I thought that it was too good to be true. today, the only remaining question is well life and there is only one way to figure that out.
And with a next phase kicking in at 100,000 barrels per day, it is safe to say that the proponents are now total believers.
Thus we are left with an open mystery as to when the Middle East will find its production seriously collapsing, which some see as imminent. The advent of THAI can in time bridge this production shortfall provided the Middle East retains the capacity to maintain current levels. This is an extremely questionable assumption currently shared by no one.
You will notice that I make no suggestion that we can support actual increases in production. We will be extraordinarily lucky if it is possible to sustain current levels while high prices drive THAI production and a slew of alternate fuel sources.
We have high prices now. There is no more encouragement needed. A price burst upward will more reflect a sudden loss of production somewhere than anything else. The fact is is that we are now very vulnerable. And as I have said, our true strategic reserve is the automobile.