What is it about the Organization of the Petroleum Exporting Countries (OPEC) that makes them such inveterate liars? Prevarication is the norm for all large human institutions (governments, bureaucracies, various ad-hoc organizations, corporations, and so on). Such behavior serves to defend the integrity and the very existence of the institution themselves, especially when the institutions in question have no integrity. Which is often the case. But OPEC is special. Lying is a way of life for them. OPEC is in a class by themselves.
This week's fabrications concern what is known as spare capacity, which one might define as the amount of crude oil a country could produce within 30 days if an emergency arose, measured in barrels-per-day (b/d). The Oil & Gas Journal routinely reports OPEC's lies as straight news.
The Organization of Petroleum Exporting Countries said the group’s varying spare capacity is set to double in 4 years when it will reach 8 million b/d.
“In 2010, OPEC’s spare capacity stood at more than 5 million b/d,” OPEC said in its most recent World Oil Outlook. “While this capacity fell to about 4 million b/d during the second and third quarter of 2011…it is expected to stabilize at about 8 million b/d over the medium term.”
The report continued, “Regardless of all the challenges and uncertainties, OPEC member countries continue to invest in additional capacities.”
OPEC said its member states plan some 132 projects for 2011-15 and that exploration and production plans for that period could translate into an investment figure of close to $300 billion should all projects be realized.
The term imaginary number is ambiguous. Technically speaking, it is a number which, when squared, yields a negative result (a real number less than zero). But OPEC has given a whole new meaning to this term when they tell us their spare production capacity, as defined above, is "about" 4 million barrels-per-day (b/d) as things currently stand. And now they say they are prepared to double this imaginary number by 2015. Of course this doubling yields another imaginary number.
Since we now living in the realm of Pure Fantasy, I see no particular reason why OPEC should not triple, or quadruple their future spare capacity. But OPEC has its reasons, because mendacity has no bounds.
OPEC has often said that carrying spare capacity represents huge financial risk, a point it stressed again in this year’s report.
In a scenario examining a more rapid shift to hybrids and electric cars, OPEC said world demand by 2035 would reach about 102 million b/d, curbing the need for extra supplies from the group.
“By 2035, the amount of OPEC crude needed will be less than current levels” under that scenario, the report said. “This means that OPEC upstream investment requirements are subject to huge uncertainties.”
El Badri said, “Confidence is key,” adding, “It would be a damaging waste of resources to invest in capacity that is not needed.”
The OPEC figures on increased spare capacity are in line with predictions made by the International Monetary Fund [IMF] in a report issued earlier this month.
IMF said global production capacity is expected to rise by 6.8 million b/d by 2016, with about 2.6 million b/d of the capacity increase expected to come from non-OPEC countries.
“The remainder of the capacity expansion [of 4.2 million b/d] is expected to come from OPEC producers, with the largest share coming from Iraq as oil facilities continue to come back online,” it said (OGJ Online, Nov. 1, 2011).
Conveniently for OPEC and the IMF, another large institution known for inventing making shit up as it goes along , OPEC's spare capacity, with the largest share coming from resurgent production in Iraq, will exactly meet the world's growth needs by 2016.
What is OPEC's spare capacity? Estimates vary, but the Energy Information Administration (EIA), yet another institution with a tendency to stretch the truth, puts it at 2.81 million b/d (Wall Street Journal summary).
Oil production among the 12 OPEC countries fell to 29.85 million barrels a day in October, down from 30.05 million barrels a day in September, the DOE's Energy Information Administration said in its monthly short-term energy outlook.
The decline was led by Saudi Arabia, which cut production by 200,000 barrels a day to 9.5 million barrels a day, and Nigeria, which cut production by the same volume to 2 million barrels a day.
Production in Libya rose to 350,000 barrels a day, according to the EIA. The figure, though an improvement from September's 150,000 barrels a day, remains a far cry from the 1.65 million barrels a day it produced before it was plunged into civil war in February.
Total production capacity remained unchanged at 32.66 million barrels a day, according to the EIA. Spare production capacity rose to 2.81 million barrels a day from 2.61 million barrels a day.
Spare capacity in Saudi Arabia, the cartel's top producer, rose by 200,000 barrels a day to 2.75 million barrels a day, the EIA said.
And now we can infer some simple truths amongst the noisy clutter of lies.
- Recall that of the 6.8 million b/d of miraculous new production capacity the IMF says we will get by 2016, 2.6 million will come from outside OPEC. Most of the rest will come from Iraq.
- Therefore, Saudi spare capacity, whatever it actually is, which is currently almost all of OPEC spare capacity, will hardly budge between now and 2016. Nobody knows what will really happen, but with the Kingdom's internal consumption growing by leaps and bounds, don't bet the farm that the Saudis will be able to match their current export capacity in the future. And assuming, of course, that Ghawar production doesn't begin its inevitable decline.
Therefore, Iraq is expected to save OPEC, although we've been told there will an imaginary 8 million b/d of spare capacity by 2015. And God Only Knows where that extra 2.6 million b/d will come from outside OPEC. I will be covering Iraq at length in future posts.
Back when I was writing weekly columns for ASPO-USA, this stuff used to drive me crazy. Not anymore!
Institutional lies and cover-ups. Whoppers! Tall Tales! Pure fantasy. The realm of dreams. Disneyland. Now I just sit back and enjoy the show—OPEC, the IEA, the IMF, the World Bank, the EIA, Congress, the European Union, Penn State, ExxonMobil, Goldman Sachs, etc. The list goes on and on.
Let me tell you where humankind really has a lot of spare capacity. Our capacity to deceive ourselves is very, very large. It is so capacious, in fact, that it is effectively infinite. Any situation, no matter how dire, can be met with a cleansing flood of lies to cover up or wash away any problem.
Yes, we've got oil production problems. Those aren't going away anytime soon. But the way I see it, the much bigger dilemma we've got has to do with self-deception, with fooling ourselves. How do you fix yourself? And your hopeless large institutions? We've got excess capacity all right, truly an endless capacity—to lie to ourselves. In this psychological realm, spare capacity is the problem, not the solution.