Tuesday, May 22, 2007

Interesting Times in Kuwait

I have a buddy that I see fairly frequently down at Jelly Baby Cloob. For the sake of his privacy and continued residence in this country we'll call him Barty. He's a bit obsessive about a thing called Peak Oil. Peak Oil theory is a kind of a game: its purpose is to figure out when the oil will run out. I'm not talking about Extra Virgin Olive Oil; that grows on trees. I'm talking about the thick black stuff that takes millions of years to make and about a century to use up. The problem with Peak Oil is that not only do the goalposts keep moving, but nobody knows how wide or tall they are, nor how many of them there are.

The thing here is that there is no easily defined point where you can say 'right that's it, there is not a single drop of crude oil left that can be extracted from the earth.' You can always find a little bit more oil somewhere. But is it economically viable to extract that last drop? That would depend on the market price of oil.

There's a kind of bell curve that describes oil production over time. It starts off small, gradually gets bigger, reaches a peak, and then declines back to nothing. The great unknown is the actual true size of discovered oil reserves. Companies and countries have, in the past, deliberately overstated, or maybe just made calculation mistakes when figuring out how much oil they had that could be profitably extracted. But once we have passed the peak of this curve, then the world is set for some major changes.

Sorry, that was a bit long-winded. Here's the story.

Two weeks ago, Barty showed me a press article. It was an interview with a Kuwaiti Minister involved in oil, who was saying in no uncertain terms that the size of Kuwait's oil reserves were a matter of national security, and under no circumstances would he reveal how big those reserves were.

One week ago, I spotted an article in the Gulf News, in which a Kuwaiti Minister involved in oil said that Kuwait had revised its proven reserves of oil from 100 billion barrels to 48 billion barrels. A few minutes after I had read this, Barty showed up. Anything good in the papers?

'Kuwait now says its reserves are only 48% of what they had previously stated'. Barty was convinced I was taking the piss out of him. As if I would! I riffled through the paper and showed him the article. He was astounded, absolutely blown away.

Oddly, that report was nowhere to be found on Gulf News' website, and although the story was reported in other UAE papers, no mention was made of the reserves downgrade. But Barty did find a full report of it on the Kuwait Times website.

A day or so ago, Kuwait announced it was disconnecting its currency from the US dollar peg. All GCC currencies are pegged to the US dollar, and that has had a serious impact in the UAE in particular, as the value of the dollar dives headlong towards zero. So congratulations to Kuwait for removing the noose from around its neck. If the UAE would only have the guts to do the same, everybody here would start to feel (and be) better off.

But Barty, of course, has a theory that the USA will take punitive action against Kuwait. 'We helped you in the first Gulf War, and then we put out the fires in your oilfields, and now you repay us by not supporting the greenback.'

'Yes but we lost half of our oil in those fires.' So the USA invades Kuwait to take revenge for them demonstrating no confidence in the dollar.

'We'll have your oil.' But the wells are almost dry.

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