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- A Sobering Look at the Oil Numbers Behind the U.S. Panic
to Invade Iraq

- Bush Knew of Peak Oil Before Taking Office

- Natural Gas Picture Worsens

US INTENTIONS

by Dale Allen Pfeiffer

(c) Copyright 2003, From The Wilderness Publications,
www.copvcia.com. All Rights Reserved. May be reprinted,
distributed or posted on an Internet web site for
non-profit purposes only.

Mar. 7, 2003, 1400 PST (FTW) -Journalist Julian Darley has
a very good website, www.globalpublicmedia.com, featuring
video interviews with notables such as Colin Campbell and
Matthew Simmons. Matthew Simmons is the president of
Simmons & Co. International, a company which specializes in
investment banking to the energy industry. The Campbell
interview1 is a very informative chat at the petroleum
geologist?s home in County Cork, Ireland. It is well worth
perusal. The Matthew Simmons interview2 was recorded in an
office of his business suite, and is also very
informative?though it is disappointing to see a person so
perceptive standing firmly behind George W. Bush. However,
in his interview, Matthew Simmons made two very big
revelations.

In the first instance, Mr. Simmons was discussing his email
correspondence with a senior assistant to former secretary
of energy Bill Richardson. The senior assistant informed
Mr. Simmons in 1999 that she was accompanying Secretary
Richardson on a visit to every OPEC country. Mr. Simmons
told her that if he was undertaking such a tour, he would
ask each country what was their spare oil capacity. Upon
returning to the United States, the senior assistant called
Mr. Simmons and told him that she was quite shocked by the
responses to this question. In country after country, she
was told that they were already pumping at or near
capacity. For practical purposes, OPEC has no spare
capacity.

Several of my associates have suspected as much. But in
this interview, Matthew Simmons verifies the fact that OPEC
is already pumping at or very close to full capacity. This
means that to meet growing demand, oil must be found
somewhere else. And OPEC most probably cannot increase
output to cover a crisis such as the Venezuelan strike, or
the disruption of Iraqi oil production in the event of
another Gulf War. In fact, it was only a year after
Secretary Richardson made his OPEC tour that world oil
production appeared to peak, beginning the cycle of rising
oil prices and tanking economies which we have been in
since. Though Matthew Simmons did not spell it out, this is
the clearest indication to date that we are at peak oil
production.

The second revelation was more political than technical.
Matthew Simmons states in this interview that he advised
the Bush campaign and the subsequent Bush administration of
the energy situation. This admission makes it very clear
that George W. Bush and his administration knew about the
approaching energy crisis before even stepping into the
White House. Thus, as we have said at FTW, oil depletion
has loomed in the background of every decision made by this
administration and every action undertaken.

In his recently released book, The Party?s Over3, Richard
Heinberg backs up this assertion and goes on to say that
the CIA has monitored the oil business for some time.
Indeed, the CIA subscribes to the yearly report of oil
analysts Petroconsultants, and so must have seen the 1995
report The World?s Oil Supply. This publication, at a cost
of $35,000 per copy, predicted that global oil production
would peak in the first decade after the turn of the
century.4

As we have stated before, Bush needed some catastrophe such
as 9-11 to justify an endless war on multiple fronts. He
needed it to provide cover for an oil grab. Of course, a
superpower such as the United States always acts on a nexus
of reasons and in pursuit of multiple goals, but greed for
oil has been a major impetus behind pretty much everything
this administration has done since taking office. Could oil
really lie behind Bush?s push to unseat Saddam Hussein?
Perhaps we should rephrase this question: How could oil not
lie behind Bush?s push for the conquest of Iraq?

Iraq

Even unnamed senior US defense officials are stating that
the plan is to take the oil fields as quickly as possible,
supposedly to protect them from Saddam.5 British troops
will be used to seize the oil fields so as to thwart the
appearance of a US oil grab. However, ExxonMobil is in the
lead position for rehabilitating the Iraqi oil fields. Oil
executives are quoted as saying there is a desperate need
to find another 80 million barrels per day to meet growing
oil demand.6 Might we add that this growing demand cannot
be met elsewhere because of the abovementioned lack of
spare capacity.

Even after seizing Iraq?s oil fields and quelling unrest
throughout the country, the oil majors will find it very
difficult to increase Iraqi oil production in the short
term. They may even have to cut production from its current
level, as Iraq has been using unsound methods to pump the
amount of oil which they are currently generating. Before
the 1991 Gulf War and the decade long Iraq-Iran War, Iraq
was pumping an average of 3.5 million barrels per day
(b/d). 7 In 2001, Iraq averaged 2.45 million b/d, and
experts say their current sustainable production capacity
could go no higher than 2.8-3.0 million b/d.8

Most of Iraq?s current oil production is centered around
three large fields, the Kirkuk field in the north of Iraq
(10+ billion barrels), the East Baghdad field in the
central part of the country (11+ billion barrels), and the
Rumailah fields in the south of Iraq (10+ billion
barrels).9 There are two other very large fields in
southern Iraq which are basically untapped to date: the
Majnoon field near the Iranian border (20+ billion barrels,
possible as much as 30 billion barrels), and the West Kuma
field closely associated with the Rumailah field (15+
billion barrels).10 Other notable fields are Nahr bin Umar
(6+ billion barrels), Rattawi (3.1 billion barrels),
Halfaya (2.5-4.6 billion barrels), Zubair (4 billion
barrels), Nassiriya (2-2.6 billion barrels), Suba-Luhais
(2.2 billion barrels), Bai Hassan (2 billion barrels),
Buzurgan (2 billion barrels), Khabboz (2 billion barrels),
Abu Ghirab (1.5 billion barrels), Khormala (1.5 billion
barrels), Tuba (1.5 billion barrels), Gharraf (1.0-1.1
billion barrels). All told, including a number of smaller
fields not mentioned here, Iraq holds proven assets of 112
billion barrels of oil. The unexplored regions of the
Western Desert could add as much as another 100 billion
barrels to this total. The area is known to contain
oil-bearing Jurassic, Triassic and Paleozoic formations,
though they are buried much deeper than the eastern
formations and so might provide more natural gas than oil.11

Much of Iraq?s oil industry was damaged during the 1991
Gulf War. Completely destroyed were the gathering centers
and compression/degassing stations at Rumailah, storage
facilities, and pumping stations along the Iraqi Strategic
(North-South) Pipeline.12 Many sizable fields were damaged
and have remained unrepaired. Sixty percent of Northern Oil
Company's facilities in northern and central Iraq were
damaged during the Gulf War.13 Iraq?s oil export
infrastructure was also severely damaged during both the
Iraq-Iran War and the 1991 Gulf War. Pipelines, ports and
pumping stations have all been affected. And Iraq?s two
main Persian Gulf tanker terminals, Mina al-Bakr and Khor
al-Amaya, were heavily damaged during the Gulf War. Damage
to Mina al-Bakr appears to have been largely repaired over
the past decade. Khor al-Amaya, on the other hand, was
severely damaged during the Iraq-Iran War and then
completely destroyed during Operation Desert Storm.14

During the decade of sanctions following the 1991 Gulf War,
Iraq tried to maintain production at existing fields
despite an embargo on spare parts and oilfield equipment.
Many of the reservoirs in production have been damaged
through mismanagement and the use of questionable
techniques in an effort to increase current production at
the price of future production. In addition to the
naturally occurring problem of water cut in Iraq?s southern
wells (the damaging intrusion of water into oil
reservoirs), many fields have been damaged by the practice
known as water flooding in order to boost current
production. Iraq?s oil minister stated that in 2002 only 24
of 73 Iraqi oil fields were producing. Oil consulting firm
Saybolt International has pointed out the risk of a 5% to
15% annual production decline at damaged Iraqi oil fields.
A U.N. report in June 2001 said that Iraqi oil production
capacity would fall sharply unless technical and
infrastructure problems were addressed. And U.N. Secretary
General Kofi Annan has warned of a possible "major
breakdown" in Iraq's oil industry if spare parts and
equipment are not forthcoming. The United States has
resisted any efforts for a long term solution to the
problems, insisting on only short-term improvements to the
oil industry. According to the head of the UN Iraq program,
Benon Sevan, the number of holds placed on contracts for
oil field equipment threatens the entire program with
paralysis. Sevan stated in January 2002 that the United
States placed over 80% of the holds, which affect nearly
2,000 contracts worth approximately $5 billion.15

Solving these problems will require major investment from a
consortium of international oil companies. It will take at
least a decade to double output, providing there is no
further damage done. It will take at least $7 billion worth
of investment to bring Iraq back to its 3.5 million b/d
production level. Pushing past that level to 5.5 million
b/d will require at least $20 billion of investment.
Analysts say Iraq has the capacity to produce double that
amount, albeit at an extraordinary cost over an extended
period of time.16 Many international companies have stepped
up to offer the needed investment. Iraq has signed
multi-billion dollar deals with companies from China,
France and Russia. And in recent months Iraq has signed a
number of deals with companies from Italy (Eni), Spain
(Repsol YPF), Russia (Tatneft), France (TotalFinaElf),
China, India, Turkey, and others.17 However, none of these
deals can move forward until they are okayed by the U.N.
Security Council.

Could all of this go toward explaining why it has become so
urgent for the United States to make war on Iraq and take
over control of Iraqi oil fields? For over a decade, the
U.S. has blocked any reparations or new development of
Iraqi oil resources. In 2001, reports finally came out
announcing that without increased access to spare parts,
repairs and new technology, Iraqi oil fields could be
damaged permanently. Pressure is building in the U.N. to
allow this remediation and modernization of Iraqi oil
infrastructure. Iraq is awarding contracts to major oil
companies from various countries, excluding U.S. and
British companies. And all of this is being blocked largely
by the U.S., while U.S. and British oil companies line up
for a piece of the action in the aftermath of an Iraqi
conquest.

Let?s see, are there any pieces of the picture which we are
missing? Oh yes, the U.S. is studying international law to
determine oil field rights in the event of a U.S. & British
conquest of Iraq. And they believe that international law
would give them considerable leeway in managing Iraq?s oil
fields (for the benefit of the Iraqi people, of course).18

And now, to round out this picture, let?s look at Iraqi oil
exports as compared to US imports. As of July 2002, Iraq
was producing 1.99 million b/d (oil production was 2.45
million b/d in 2001). Of this, they export 1.5 million b/d,
over one-third of that, 566,000 b/d to the U.S. This is
down from 795,000 b/d (or 53%) in 2001. The route to the
U.S. is very circuitous, as the oil is first purchased by
companies from many countries, including Cyprus, Sudan,
Pakistan, China, Vietnam, Egypt, Italy, Ukraine, and others
and then is resold to U.S. importers, including ExxonMobil,
Chevron, Citgo, BP, Marathon, Coastal, Valero, Koch, and
Premcor.19 There is also an unknown amount of oil being
smuggled out through Syria and other countries. It is
difficult to say how much of this, if any, is making its
way to the U.S.

Now let?s look at the U.S. side of this equation. The U.S.
imported an average of 10.3 million b/d as of September
2002. Of this, Iraqi oil would only amount to 6% of U.S.
imports (8% in 2001). However, the U.S. derives around 26%
of its daily oil imports from the Middle East?that is 2.3
million b/d as of August 2002. So Iraqi oil accounts for
about one-quarter of our Middle East imports. Comparing
Iraqi imports to our top sources of imports, Saudi Arabia
exports 1.49 million b/d to the U.S. (14% of total
imports), Mexico exports 1.46 million b/d (also 14% of
total U.S. imports), Canada exports 1.37 million b/d to the
U.S. (13% of the total), and Venezuela?prior to the oil
strike?exported 1.14 million b/d (11% of the total).20 If
this ranking of major oil imports was continued, Iraq would
probably rank in the top ten. However, were the sanctions
removed and the oil infrastructure repaired, Iraq would
undoubtedly rival Saudi Arabia for the number one position;
especially under a US military protectorate with US and
British companies running the oil business. Beyond this,
the conquest of Iraq?if successful?would allow us to add
badly needed spare capacity to world oil production and it
might stop the flight of oil countries from the petrodollar
to the euro.

Other Oil News

Venezuela is still recovering from the oil strike. The EIA
now states that Venezuelan oil production gradually rose to
1.2 million b/d in February.21 The EIA?s current short-term
energy outlook assumes that the Venezuelan oil crisis will
be over by March.22 However, they warn that Venezuelan
supplies will not approach pre-crisis levels for another
several months. Furthermore, it is possible that around
700,000 b/d of production may be permanently lost due to
the strike.23 The EIA warns that OPEC efforts to increase
output to make up for lower Venezuelan exports has reduced
global spare capacity to only 2 million b/d?this spare
capacity coming almost entirely from Saudi Arabia. There is
very little room remaining to make up for unexpected supply
drops or demand increases.24

On top of this, Nigeria?s white collar union began an oil
export strike on Saturday, February 15th. Nigeria is the
seventh largest oil exporter in the world. Royal
Dutch/Shell, the country?s biggest producer, pumps an
average 900,000 b/d. The oil companies expect to replace
strikers with senior staff, and point out that previous
strikes had little impact on exports. However, fear of the
strike caused oil prices to temporarily jump by 16 cents
per barrel.25 It is evident that the market is now so tight
and the world economy so gun-shy that it is to be wondered
how the world will survive an invasion of Iraq.

On top of all this, there was a small item in the
Australian newspaper The Courier Mail stating that leftist
rebels in Colombia have blown up a large section of that
country?s most important pipeline. Operated by Occidental
Petroleum, the pipeline carried 105,000 b/d.26 Little more
is to be found about this story on the various news wires.
The Bush administration has been bolstering military aid to
Colombia, including increasing numbers of advisors. They
have impressed upon the Colombian military that it is of
primary importance to protect the oil pipelines, and they
have labeled the rebels as international terrorists. What
response there will be on the part of the U.S. to this
latest strike at U.S. oil interests is hard to say.

Finally, in the EIA weekly petroleum updates, we find that
for the week ending February 7th, crude oil imports
declined by another 1.2 million barrels from the previous
week. U.S. commercial crude inventories for that week sank
to 269.8 million barrels, just crossing the Lower
Operational Inventory Level (LOIL). This is the lowest
inventory level since October 1975. However, in the week
ending February 14th, crude oil imports rose to nearly 8.8
million b/d, the largest weekly average since December
20th. U.S. commercial crude inventories increased by 3.1
million barrels to 272.9 million barrels. This was back
above the LOIL, but still 50.4 million barrels below the
level of a year ago.27

Natural Gas

The picture for natural gas (NG) is even worse. As of
February 14th, NG storage stood at 1,168 billion cubic feet
(Bcf), down by 203 Bcf from the week previous. This was 868
Bcf less that a year ago and 436 Bcf below the 5-year
average of 1,604 Bcf.28 In an article in The Oklahoman,
Tony Say, president of gas marketing company Clearwater
Enterprises said he expects NG reserves to reach an
all-time low of 600 Bcf by the end of the season. Bruce
Bell, Chairman of the Mid-Continent Oil & Gas Association?s
Oklahoma Division, warned that once you get down to 700 Bcf
there are serious doubts as to how much gas can be
withdrawn. The nation's gas reserves are stored in
underground caverns, where there must be a certain amount
of gas to create enough pressure to force the reserves
out.29

Raymond James & Associates, in a recent report on natural
gas, points out that NG production will continue to fall by
1.0 -1.5% per quarter for the foreseeable future. They warn
that even if production returned to the feverish pitch of
2001, it would take three to six months before the new
production would begin to slow down the natural declines in
existing wells.30 Yet the NG rig total has hovered between
800 and 900 for the past year; at least 100 less than the
number needed to meet national demand, according to Bruce
Bell. Despite rising NG prices for the last couple months,
work has begun on only 15 new wells.31

And according the Lehman Brothers, Canadian gas production
is continuing to fall by as much as 4%. And this drop will
coincide with a 500 million cubic feet per day decrease in
NG exports to the U.S. Canadian NG demand rose in 2002 by 2
to 3% from the previous year. Net exports to the U.S. are
expected to fall by 5% in 2003.32

Based on all of this data, the NG crunch of this year could
lead to an NG crisis a year from now.

ENDNOTES

1 Colin Campbell Discussing Oil Depletion, Julian Darley.
Global Public Media, 12/18/2002.
http://globalpublicmedia.com/INTERVIEWS/COLIN.CAMPBELL/

2Matt Simmons discussing oil peak; natural gas; what the
President knows; hydrogen; and Iraq, Julian Darley. Global
Public Media, 2/10/2003.
http://globalpublicmedia.com/INTERVIEWS/MATT.SIMMONS/

3 The Party?s Over: Oil, War, and the Fate of Industrial
Societies, Richard Heinberg. New Society Publishers, April
2003.
http://www.amazon.com/exec/obidos/tg/detail/-/0865714827/qid=1045851880/sr=1-1/ref=sr_1_1/

002-4461621-4414410?v=glance&s=books

4 Ibid. Page 86.

5 US Admits Plan to Snatch Iraqi Oil Fields, Mark Ellis &
Gary Jones. The Daily Mirror, 1/25/2003.
http://www.mirror.co.uk/news/allnews/page.cfm?

objectid=12568779&method=full&siteid=50143

6 Ibid.

7 Iraqi Oilfields, Dev George. Oil & Gas International,
1/22/03. http://www.oilandgasinternational.com/departments/

regional_spotlight/jan03_iraq.html

8 Iraq Country Analysis Brief. EIA, October 2002.
http://www.eia.doe.gov/emeu/cabs/iraq.html

9 Ibid.

10 Op.Cit. See note 7.

11 Op. Cit. See notes 7 & 8. Oil & Gas International, and
EIA.

12 Op. Cit. See note 8.

13 Ibid.

14 Ibid.

15 Ibid.

16 Op. Cit. See note 7.

17 Op. Cit. See note 8.

18 US Studying International Law to Determine Oil Field
Rights in Event of War with Iraq. Drudge Reports,
1/29/2003. Citing the Wall Street Journal.
http://www.drudgereportarchives.com/data/

2003/01/30/20030130_061815_flash.htm

19 Op. Cit. See note 8.

20 United States Country Analysis Brief. EIA, November
2002. http://www.eia.doe.gov/emeu/cabs/usa.html

21 OPEC Brief. EIA, 2/7/2003.
http://www.eia.doe.gov/emeu/cabs/opec.html

22 Short-Term Energy Outlook?February 2003. EIA, 2/7/2003.
http://www.eia.doe.gov/emeu/steo/pub/steo.html

23 Op. Cit. See note 21.

24 Op. Cit. See note 22.

25 Nigerian Oil Export Strike Starts Saturday ?Union, Dino
Mahtani. Reuters, 2/14/2003.
http://story.news.yahoo.com/news?tmpl=story&u=/

nm/20030214/wl_nm/energy_nigeria_strike_dc_2

26 Rebels Blow up Key Oil Pipeline. The Courier Mail,
2/6/2003.
http://www.thecouriermail.news.com.au/common/story_page/

0,5936,5944948%255E401,00.html

27 Summary of Weekly Petroleum Data. EIA, 2/14/2003.
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/

weekly_petroleum_status_report/current/txt/wpsr.txt

28 Weekly Natural Gas Storage Report. EIA, 2/20/2003.
http://tonto.eia.doe.gov/oog/info/ngs/ngs.html

29 Cold snap gives boost to gas prices, Adam Wilmoth. The
Oklahoman, 2/8/2003.
http://newsok.com/cgi-bin/show_article?ID=984108&pic=none&TP=getbusiness

30 Energy "Stat of the Week" January 21, 2003. Raymond
James & Associates.
http://170.12.99.3/researchpdf/iEne012103b_0738.pdf

31 Op. Cit. See note 29.

32 Canada Gas Production Seen Falling 2%-4% - Lehman Bros.
The Morning Star, sourcing Dow Jones, 2/12/2003.
http://news.morningstar.com/news/DJ/M02/D12/1045083663075.html


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