Peak Oil Theory a Scam?

This is a great article published in the Asia Times Online site. It challenges all of the conventions of Peak Oil Theory and the underlying assumptions regarding "Fossil Fuels".

Russia is far from oil's peak

The good news is that panic scenarios about the world running out of oil any time soon are wrong. The bad news is that the price of oil is going to continue to rise. "Peak Oil" is not our problem. Politics is. Big Oil wants to sustain high oil prices. US Vice President Dick Cheney and friends are all too willing to assist.

The Peak Oil school rests its theory on conventional Western geology textbooks, most by American or British geologists, which claim oil is a "fossil fuel", a biological residue or detritus of either fossilized dinosaur remains or perhaps algae, hence a product in finite supply. Biological origin is central to Peak Oil theory, used to explain why oil is only found in certain parts of the world where it was geologically trapped millions of years ago.

That would mean that dinosaur remains became compressed and over tens of millions of years fossilized and were trapped in underground reservoirs perhaps 1,200-2,000 meters below the surface of the Earth. In rare cases, so goes the theory, huge amounts of biological matter should have been trapped in rock formations in the shallower ocean regions such as in the Gulf of Mexico or North Sea or Gulf of Guinea. Geology should be only about figuring out where these pockets in the layers of the earth, called reservoirs, lie within certain sedimentary basins.

An entirely alternative theory of oil formation has existed since the early 1950s in Russia, almost unknown to the West. It claims that the conventional US biological-origins theory is an unscientific absurdity that is unprovable. They point to the fact that Western geologists have repeatedly predicted finite oil over the past century, only then to find more, lots more.

Not only has this alternative explanation of the origins of oil and gas existed in theory, the emergence of Russia as the world's largest oil and natural-gas producer has been based on the application of the theory in practice. This has geopolitical consequences of staggering magnitude.

In the 1950s, the Soviet Union faced "Iron Curtain" isolation from the West. The Cold War was in high gear. Russia had little oil to fuel its economy. Finding sufficient oil indigenously was a national-security priority of the highest order.

Scientists at the Institute of the Physics of the Earth of the Russian Academy of Sciences and the Institute of Geological Sciences of the Ukraine Academy of Sciences began a fundamental inquiry in the late 1940s: Where does oil come from?
In 1956, Professor Vladimir Porfir'yev announced their conclusions: "Crude oil and natural petroleum gas have no intrinsic connection with biological matter originating near the surface of the Earth. They are primordial materials which have been erupted from great depths."

The Soviet geologists had turned Western orthodox geology on its head. They called their theory of oil origin the "abiotic" theory - non-biological - to distinguish it from the Western biological theory of origins.

If they were right, oil supply on Earth would be limited only by the amount of organic hydrocarbon constituents present deep in the Earth at the time of the planet's formation. Availability of oil would depend only on technology to drill ultra-deep wells and explore into the Earth's inner regions. They also realized that old fields could be revived to continue producing, so-called self-replenishing fields. They argued that oil is formed deep in the Earth, formed in conditions of very high temperature and very high pressure, like that required for diamonds to form.

"Oil is a primordial material of deep origin which is transported at high pressure via 'cold' eruptive processes into the crust of the Earth," Porfir'yev stated. His team dismissed the idea that oil is is biological residue of plant and animal fossil remains as a hoax designed to perpetuate the myth of limited supply.

The radically different Russian and Ukrainian scientific approach to the discovery of oil allowed the USSR to develop huge gas and oil discoveries in regions previously judged unsuitable, according to Western geological exploration theories, for the presence of oil. The new petroleum theory was used in the early 1990s, well after the dissolution of the USSR, to drill for oil and gas in a region believed for more than 45 years to be geologically barren - the Dnieper-Donets Basin in the region between Russia and Ukraine.

Following their abiotic or non-fossil theory of the deep origins of petroleum, the Russian and Ukrainian petroleum geophysicists and chemists began with a detailed analysis of the tectonic history and geological structure of the crystalline basement of the Dnieper-Donets Basin. After a tectonic and deep structural analysis of the area, they made geophysical and geochemical investigations.

A total of 61 wells were drilled, of which 37 were commercially productive, an extremely impressive exploration success rate of almost 60%. The size of the field discovered compared to the North Slope of Alaska. By contrast, US wildcat drilling was considered to have a 10% success rate. Nine of 10 wells are typically "dry holes".

Peak Oil theory is based on a 1956 paper by the late Marion King Hubbert, a Texas geologist working for Shell Oil. He argued that oil wells produced in a bell-curve manner, and once their "peak" was hit, inevitable decline followed. He predicted that US oil production would peak in 1970. A modest man, he named the production curve he invented Hubbert's Curve, and the peak as Hubbert's Peak. When US oil output began to decline in about 1970, Hubbert gained a certain fame.

The only problem was, it peaked not because of resource depletion in the US fields. It "peaked" because Shell, Mobil, Texaco and the other partners of Saudi Aramco were flooding the US market with dirt-cheap imports from the Middle East, tariff-free, at prices so low California and many Texas domestic producers could not compete and were forced to shut their wells.

While the US oil multinationals were busy controlling the easily accessible large fields of Saudi Arabia, Kuwait, Iran and other areas of cheap, abundant oil during the 1960s, the Russians were busy testing their alternative theory. They began drilling in a supposedly barren region of Siberia. There they developed 11 major oilfields and one giant field based on their deep abiotic geological estimates. They drilled into crystalline basement rock and hit black gold of a scale comparable to the Alaska North Slope.

They then went to Vietnam in the 1980s and offered to finance drilling costs to show that their new geological theory worked. Russian company Petrosov drilled in Vietnam's White Tiger oilfield offshore into basalt rock some 5,000 meters down and extracted 6,000 barrels a day of oil to feed the energy-starved Vietnam economy. In the USSR, abiotic-trained Russian geologists perfected their knowledge and the Soviet Union emerged as the world's largest oil producer by the mid-1980s. Few in the West understood why, or bothered to ask.

Dr J F Kenney is one of the only Western geophysicists who has taught and worked in Russia, studying under Vladilen Krayushkin, who developed the huge Dnieper-Donets Basin. Kenney told me in a recent interview that "alone to have produced the amount of oil to date that [Saudi Arabia's] Ghawar field has produced would have required a cube of fossilized dinosaur detritus, assuming 100% conversion efficiency, measuring 19 miles [30.5 kilometers] deep, wide and high." In short, an absurdity.

Western geologists do not bother to offer hard scientific proof of fossil origins. They merely assert their belief as a holy truth. The Russians have produced volumes of scientific papers, most in Russian. The dominant Western journals have no interest in publishing such a revolutionary view. Careers, entire academic professions are at stake, after all.

Fed Destroys Dollar to Help Wall Street!

Business Week is the latest publication to finally stand up and take notice of the Fed policies that are destroying the dollar to prop up Wall Street.

Aside from the dollar and long-term bonds, markets rose last week as the Federal Reserve demonstrated that it is more fearful of a slowing economy and banking woes than inflation. In fact, it is willing to sacrifice the dollar to save the banks. Just last month, the Fed was saying that the threat of inflation is just as great as the threat of a slowdown in the economy. Now it is cutting rates in a huge way as the Dow nears its all-time high, gold is making new highs, and the price of oil is exploding.

The Fed is obviously terrified. Chairman Ben Bernanke built his career on a doctoral thesis that claimed that the Fed didn't cut rates fast enough during the 1929 stock market crash. But if you look at a chart of the Depression bear market with an overlay chart of interest rates, you'll see that the Fed cut interest rates as the market topped. And when you look at the charts for a few years later, when the market finally bottomed, you'll see that the Fed had been lowering rates all the way down.

Bernanke believes that the Fed should have cut rates all at once during the start of the bear market instead of gradually over two years. He seems to be putting this belief to work right now. It means that he is gravely concerned about the state of real estate and banking in the U.S.


If the credit markets don't revitalize in the next few weeks, you can expect to see the Fed lower rates again by another 50 points at their October Federal Open Market Committee meeting no matter where the dollar, gold, or the Dow are. They have signaled that they don't give a damn about the dollar. All they care about is Wall Street.

However, there's another way to view the matter. One could say that they don't care about inflation because they see a total bust in housing that will create deflationary pressures in the economy. Mishkin's paper projects negative gross domestic product growth for the next five years, a federal funds rate falling two full points lower, consumer spending shrinking for five years, and the consumer price index going down and staying negative if housing prices decline by 20%. These negative trends are expected to begin now and accelerate through 2010.

Mishkin sees such a housing price decline as very likely, given that home prices fell by 16% from late 1979 through late 1982. Contrary to people who believe that real estate is the best investment you can buy because it never drops, remember: It has dropped in the past. And with bubbles leading to busts, it is happening right now. The question remains, when will it stop? After the Nasdaq topped in March, 2000, it didn't bottom for two full years. Real estate topped out a year ago.

I have to wonder what happens if the Fed lowers rates by 1% or more in the next three months and real estate doesn't rebound? A central bank has never tested these theories. We don't know if cutting rates all at once will prevent the damage caused by a bursting bubble. Even when the tech bubble burst in 2000, Alan Greenspan didn't lower rates until almost a year later, after the Nasdaq fell to almost half its value.

The problem is that real estate is still overvalued, just as tech stocks became overvalued in 2000. It's likely real estate will need to return to a normal valuation before it bottoms out, setting the stage for recovery, so simply lowering interest rates may not have the wonderful effects that Mishkin and Bernanke hope for.

What I do know for sure, which is all you need to know to make money, is that the Fed is setting up an inflationary trend. The money the Fed prints has to go somewhere. Of course, this is bullish for gold and commodities—which are now leading the stock market. Still, it's entirely possible that the Dow and broad market could continue to go up, too

Gap Widening Between The Rich and the Super-Rich!

Priceless!


In The Know: Are America's Rich Falling Behind The Super-Rich?

A Fine Line!

A big hat tip goes out to the Richter Scales for this excellent tribute to the current credit meltdown!

Greenspan Admits Ignorance!

It's too late to save millions of homeowners that duped lenders or those that were duped by lenders but Greenspan finally admits that he was ignorant of the extent of the subprime mortgage problem. It's about time!

Greenspan: I didn't grasp subprime threat

Former Federal Reserve Chairman says he didn't see early on the damage that lending to those with questionable credit could do to the economy.

WASHINGTON (AP) -- Former Federal Reserve Chairman Alan Greenspan acknowledges he failed to see early on that an explosion of mortgages to people with questionable credit histories could pose a danger to the economy.

In an upcoming interview, Greenspan said he was aware of "subprime" lending practices where home buyers got very low initial rates only to see them later jacked up, causing severe payment shock. But he said he didn't initially realize the harm they could do.

Robert Miller of the Daily Telegraph joins CNN to discuss the Bank of England and European Central Bank's rate decision.
Play video

"While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he said a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006," Greenspan said.

An excerpt of the interview was released Thursday.

A meltdown in the subprime mortgage market has rocked Wall Street. Foreclosures and late payments have soared and lenders have gone out of business. Nervous financial institutions tightened credit standards, making it harder for even more creditworthy borrowers to get financing. This has increased chances the economy might slide into a recession this year.

Greenspan, who ran the central bank for more than 18 years - the second-longest serving chairman in history - left in 2006. His successor, Ben Bernanke, has had to deal with a credit and financial crisis stemming from the subprime mortgage mess.

When he was at the helm, Greenspan maintained there was little the Fed - which also oversees the safety and soundness of banks - could do about the subprime situation. One of the Fed's governors, however, had raised a red flag about questionable lending practices.

"Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," Greenspan said in the interview.

Some blamed Greenspan's interest rate policies for feeding the housing frenzy. Sales had hit record highs and house prices galloped from 2001 to 2005. Then the market fell into a deep slump.

Turmoil could take months to resolve, Paulson says

WASHINGTON (MarketWatch) -- Strains in global credit markets could take months to work out as the markets reassess the price of risk, Treasury Secretary Henry Paulson said Thursday in a televised interview.

"There have been real strains in the capital markets and across some of the credit markets," Paulson told the Nightly Business Report on PBS. "And I think this will take a while to play out, and almost certainly over time this will have an impact on our economy."

"It's certainly going to be into the weeks, maybe a number of months," he said.
Investors seem to "learn their lesson every seven, eight, 10 years or what have you," he said.

Paulson said the economy would pay a "penalty," but insisted that the U.S. and global economies were "very strong."

Paulson said estimates of 2 million foreclosures are exaggerated. He said the Bush administration is not seeking to bail out "speculators."

Words of Wisdom From The Chief Bubble Blower!

Former Federal Reserve Chairman Alan Greenspan Says Market Turmoil Like 1998, 1987

NEW YORK (AP) -- "The human race has never found a way to confront bubbles," former Federal Reserve Chairman Alan Greenspan said Thursday in reference to the euphoria that can precede contractions, or reactions, like the current market turmoil, according to a published report.

Ah yes, it is the human race that cannot control themselves. They are not enticed by the allure of easy money from Federal Reserve Chairmen that lower interest rates to 1%, keep rates low for too long, encourage homebuyers to take on variable rate mortgages, raise interest rates 14 times, and applaud the use of subprime mortgages to make housing more attainable for all Americans.

Greenspan, speaking to economists in Washington, D.C., compared the turmoil to that of 1987 and in 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed, The Wall Street Journal reported on its Web site.

"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 3/8 1907," Greenspan said at the event organized by the Brookings Papers on Economic Activity, according to the Journal.

Greenspan, now a private consultant, said euphoria takes over when the economy is expanding and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," the Journal said.

...or when inept Federal Reserve Chairmen retire and someone else has to clean up their mess.

Bubbles can't be defused through incremental adjustments in interest rates, he suggested, the paper reported. The Fed doubled interest rates in 1994-95, and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997," when the Fed raised rates a quarter of a percentage point, and "the same phenomenon occurred."

That's right Easy Al. When you create a monstrosity of a bubble and you hope that incremental interest rate hikes will scare home buyers from taking on mortgages, it doesn't work. They fall prey to corrupt mortgage brokers, bankers, and real estate agents as they are consumed by greed and fear. They want to make money. They don't want to miss out on a once in a lifetime investment opportunity. Ultimately though, the cheap money was created by Greenspan and Wall Street ran with it. Banks gave money to anybody that had a pulse, repackaged the toxic waste mortgages, and sold them off and the disastrous results are only beginning to be discovered. Am I the only one getting tired of hearing his retirement sermons? It's time to give up the limelight Al. Now that the mainstream media is pointing fingers in the housing bubble blame game, there really is nowhere to hide.

All Is Well!

Michael Shedlock has a scathing analysis of a CNN article on the Fed's Beige Book Report. Their article "Beige Book Finds 'Limited' Credit Hit Outside Of Housing" paints the picture that "All is Well". As Mish points out:

Panic Speaks Louder Than Words

Peter Schiff - Straight Talk on CNN

Peter Schiff pulls no punches on a CNN Housing Bubble segment. It's like a breath of fresh air to hear someone tell it like it really is. This was a true "No spin zone" segment. Government intervention will only make things worse. The problem is that swallowing a bitter economic pill is probably easier than dealing with the political fallout of having adverse economic conditions before an election year.

Risk Apathy

I came across this video showing a High Stakes Poker Hand in which the pot was over $500,000 and I was amazed at the reaction of Daniel Negreanu and Gus Hansen at the end of the hand. The commentators explained that winning or losing hundreds of thousands of dollars wasn't a big deal to them because they don't value money in playing poker the way they would in the real world. It reminded me of the housing market and how willing people were/are to take on massive mortgages between $500,000 to $1 Million because they could/can afford the payments in a low interest rate environment. When did the apathy regarding risk become so commonplace in society?