Peak Oil? Why is Shell shutting down "wildly profitable" plants in CA?

Read on, I dare ya.

NEWSLETTER #64
August 17, 2004
Whoa, Dude! Are We Peaking Yet?
http://www.davesweb.cnchost.com/nwsltr64.html


"The Club of Rome, a non-profit global think tank, said in the 1970s that we'd hit peak oil in 2003. It didn't happen." So said Kevin Kelleher, writing for Popular Science magazine in August of this year.
But it did indeed happen, according to Michael Ruppert and his band of resident 'experts,' who collectively insist that the planet is now at the point of 'peak' oil production.
(Kevin Kelleher "How Long Will the Oil Age Last?" Popular Science, August 2004)

It appears then that today's 'Peak Oil' crowd has some pages in their propaganda playbook that were lifted directly from the Club of Rome, which raises the obvious question: what exactly is the Club of Rome? Who is it that has handed Michael Ruppert and company the baton?
The initial membership list of the Club of Rome, as it turns out, contains some interesting names:
David Rockefeller: Bilderberger, cofounder of the Trilateral Commission, former chairman of the Council on Foreign Relations, scion of the world's most prominent oil dynasty, and all-around bad guy.
John J. McCloy: Former advisor to the Mussolini regime who had the honor of sitting in Adolf Hitler's private box at the Berlin Olympic games; later served as High Commissioner of Germany, during which time he signed an order freeing the majority of the Nazi war criminals that had been convicted at Nuremberg; still later, served on the infamous Warren Committee.
Averell Harriman: Skull and Bonesman and high-level political operative through several presidential administrations; together with members of the Dulles family and the Bush/Walker family, established various business entities engaged in providing funding to Nazi Germany, even after the United States had entered the war.
Katherine Graham: Longtime publisher of the Washington Post and longtime CIA asset who once famously said, while speaking at the CIA's Langley, Virginia headquarters: "We live in a dirty and dangerous world.
There are some things the general public does not need to know and shouldn't. I believe democracy flourishes when the government can take legitimate steps to keep its secrets and when the press can decide whether to print what it knows."

Quite a distinguished cast of characters, I have to admit -- although not necessarily the type of people whose lies and spin most dissidents/progressives would accept as good coin. But guess what? If you are buying (or selling) the 'Peak Oil' bullshit, then you already have.

* * * * * * * * * *

On June 21, the Los Angeles Times ran a story that the ever-growing 'Peak Oil' crowd seems to have missed. The article concerned the Shell oil refinery in Bakersfield, California that is scheduled to be shut down on October 1 -- despite the fact that the state of California (and the nation as a whole) is already woefully lacking in refinery capacity.

Now why do you suppose that Shell would want to close a perfectly good oil refinery? It can't be because there is no market for the goods produced there, since that obviously isn't the case. And it isn't due to a lack of raw materials, since the refinery sits, as the Times noted, atop "prolific oil fields." The Scotsman recently explained just how prolific those fields are:

The best estimates in 1942 indicated that the Kern River field in California had just 54 million barrels of remaining oil. By 1986, the field had produced 736 million barrels, and estimates put the remaining reserves at 970 million barrels.
(http://news.scotsman.com/index.cfm?id=578462004)

Of course, just because there is a strong demand for a product, and a ready source of raw materials with which to produce that product, does not mean that any corporate entity is obligated to bring that product to market. In the corporate world, the only thing that ever matters is the "bottom line," because corporations exist for one purpose
only: to generate profits. So the only question, I suppose, that really matters, is: can the refining of gasoline and diesel fuel at this particular facility generate profits for the corporation?

One would naturally assume, given Shell's decision to close the refinery, that the answer to that question is "no." But that would be an entirely wrong assumption, since the truth is, as L.A. Times reporters discovered when they got their hands on internal company documents, that the refinery is wildly profitable. How wildly profitable? The Bakersfield plant's "profit of $11 million in May <2004> was 57 times what the company projected and more than double what it made in all of 2003." (Elizabeth Douglas "Shell to Cut Summer Output at Bakersfield Refinery, Papers Say," Los Angeles Times, June 21, 2004)

Go ahead and read that again: "more than double what it made in all of 2003." In a single month! And 2003 wasn't exactly what you would call a slow year at the Bakersfield refinery. According to Shell documents obtained by the Foundation for Taxpayer and Consumer Rights, "Bakersfield's refining margin at $23.01 per barrel, or about 55 cents profit per gallon, topped all of Shell's refineries in the nation."
(http://releases.usnewswire.com/GetRelease.asp?id=114-04062004)

Let's pause briefly here to review the situation, shall we?
There is a product (gasoline) that is in great demand, and that will always be in great demand, since the product has what economists like to call an "inelastic" demand curve; for many months now, that product has been selling for record-breaking prices, especially in the state of California, and there is no indication that that situation will change anytime soon; there are abundant local resources with which to produce that coveted product; and, finally, there is a ridiculously profitable facility that is ideally located to manufacture and market that product.

Given that situation, what response would we normally expect from that facility's parent corporation? Sit back and let the good times roll? Attempt to increase production at the facility and rake in even greater profits? Sell the facility and make a windfall profit? Or, tossing logic and rationality to the wind, shut the facility down and walk away?
That last one, of course, is what Shell has chosen to do. And this story, believe it or not, gets even better:

The internal documents obtained by the Times, including a refinery output forecast, indicate that Bakersfield will soon be producing far less than its capacity. After relatively high output rates in May and early June, Shell plans to cut crude oil processing about 6% in July and another 6% in August, according to the forecast. Those two months are when California's fuel demand reaches annual peak levels.

Aamir Farid, the general manager of the Bakersfield refinery, was asked the reason for the plan to reduce output at the time of peak demand. Farid claimed that he was not aware of any such plan, but he added that if there was such a plan, "there is a good reason for it."
However, he also added that, "off the top of my head, I don't know what that good reason is."

And why would he? Certainly the manager of the refinery can't be expected to know why his facility is planning to dramatically reduce output, can he? The best explanation that Farid could come up with was to speculate that there "could be maintenance planned or projections for a shortfall of crude." Neither of those scenarios are very plausible, however.

Bakersfield, whose suburbs include Oildale and Oil Junction, won't likely be facing a shortfall of crude anytime soon. And as for the notion of planned maintenance, I doubt that anyone actually believes that Shell plans to perform two months worth of maintenance work on a facility that will be permanently shuttered just one month after that work is completed.

To be fair, I suppose it could be the case that Shell, being the benevolent giant that it is, wants to get the place in tip-top shape for the new owners -- except that there are no new owners, primarily because "Shell didn't search out potential buyers for the refinery once it decided to shutter it." Indeed, Shell actively avoided finding a buyer for the plant (which became a fully-owned Shell asset just three short years ago), since any new owner would probably object to the bulldozers and wrecking balls that Shell plans to bring in just as soon as the refinery's doors have closed. ("FTCR uncovered a timetable showing decommissioning and demolition are set to begin immediately after the refinery's shut down date."
http://releases.usnewswire.com/GetRelease.asp?id=114-04062004)

Can any of you 'Peak Oil' boosters out there think of any legitimate reason why a purely profit-driven corporation would acquire an outrageously profitable asset and then proceed to deliberately destroy that asset? ... because I have to tell you, I have been struggling to come up with an explanation on my own and the only one that I've got so far is that the corporation might be involved in some kind of conspiracy to manufacture an artificial shortage of a crucial commodity. I know that 'Peak Oil' theory holds that we don't need the refinery capacity because, you know, we're running out of oil and all, but that doesn't explain why a tremendously profitable refinery isn't being kept in operation at least until all the local wells have run dry, does it?

Shell will, by the way, continue to operate its Martinez, California refinery -- for now at least. The Martinez facility is also wildly profitable, showing a "net profit of $34 million in May." That tidy profit was, as it turns out, "just shy of Shell's profit expectations at Martinez for all of 2004." Strangely enough, the Martinez facility, like the one in Bakersfield, "cut crude processing in July, by nearly 10%, a reduction attributed to planned heavy maintenance."

It's always a good idea, I suppose, to schedule heavy maintenance work during times of peak energy demand. That's the kind of intelligent business decision we would expect from a corporate giant with decades of experience in the energy business.

On July 8, the LA Times, armed with yet more internal company documents and an unnamed company whistleblower, revisited the story of the Bakersfield refinery. As of July 1, it was discovered, Shell had "reduced crude oil processing at the refinery to levels 19% below capacity" -- more than triple the unexplained reduction that had been planned for the facility.
(Elizabeth Douglas "FTC Probing Shell's Plan to Shut Refinery,"
Los Angeles Times, July 8, 2004)

According to both company documents and the unnamed employee, "there were no problems with the plant's equipment," and no other explanation was offered for the radical reduction in processing -- undoubtedly because there is no legitimate reason for the decreased output. So obvious is the company's intent to artificially tighten gasoline and diesel supplies that the FTC was obliged, for the sake of appearances, to step in and pretend to launch an investigation. Shell's response to the investigation has been to delay the closing of the refinery for a few months while it goes through the motions of pretending to find a buyer.

In completely unrelated news, a July 31 LA Times report announced that "profit at ChevronTexaco Corp. more than doubled during the second quarter ... echo the strong quarterly results reported by other major U.S. oil refiners this week." ChevronTexaco's profit jumped from $1.6 billion to $4.1 billion. Not too shabby. Three days later, the Times reported that Unocal's earnings for that same quarter had nearly doubled, from $177 million to $341 million.
(Debora Vrana "Chevron Profit Soars," Los Angeles Times, July 31, 2004, and Julie Tamaki "Unocal's Earnings Nearly Double," Los Angeles Times, August 3, 2004)

Nobody should conclude from any of this, of course, that inflated fuel prices are attributable to rampant greed and the quest for obscene profits. No, clearly rising fuel prices are a sign of 'Peak Oil.' Just ask Mike Ruppert and Mark Robinowitz. Or better yet, bypass the flunkies and go directly to the scriptwriters at Halliburton and the Club of Rome.

* * * * * * * * * *

Speaking of Ruppert, I thought that I should, as a favor to you, big Mike, point out what appears to be a slight inconsistency in your research methodology. I do this to provide you with an opportunity to correct the problem, so that people don't get the impression that you are the kind of guy who doesn't let the truth get in the way of advancing an agenda.

While attempting to justify your unwavering refusal to focus any attention whatsoever on the so-called 'physical evidence' portion of the
9-11 skeptics' case, you have loudly proclaimed that pursuing that approach "will never penetrate the consciousness of the American people in a way that will bring about change. What will penetrate, from my experience, is taking non-scientific reports that most people instantly accept as credible, whether news reports or government statements or documents, and merely showing that they are lies. That opens the wedge, and removes any reliance upon expert or scientific testimony which is typically used to confuse simple facts."

I trust that you remember penning those words. And I trust that you also remember penning these words, which you felt compelled to send on their merry way to my mailbox: "I challenge you to an open, public debate on the subject of Peak Oil ... I challenge you to bring scientific material, production data and academic references and citations for your conclusions like I have .. I will throw more than 500 footnoted citations at you from unimpeachable sources. Be prepared to eat them or rebut them with something more than you have offered."

Do you see the problem here? It almost sounds like you are saying that there are completely different rules for conducting 9-11 research than there are for conducting 'Peak Oil' research. By my reading, what you seem to be saying is that sometimes you want to avoid the scientific stuff at all costs and instead focus solely on demonstrating that "news reports or government statements or documents ... are lies," because that will "penetrate the consciousness of the American people." But at other times, you want to rely exclusively on all that expert scientific testimony - the kind that is "typically used to confuse simple facts" - and you want to pretend that the media reports and government statements that you are citing are "unimpeachable sources."

I have to admit that it is all very confusing to me, but luckily we have a seasoned, world-class investigator out there who knows, intuitively perhaps, which of the two completely contradictory techniques to employ in a given situation. The rest of us, I suppose, lacking invaluable LAPD training, can only aspire to such greatness.

* * * * * * * * * *
So ... I was taking care of some important business the other day, and being a multi-tasking kind of guy, I was also idly leafing through a copy of one of Uncle John's Bathroom Readers. Now, Uncle John is not normally one of my primary sources of information, but I happened to stumble across a subject that immediately caught my attention:
underground coal fires (I later conducted a Google search on "underground coal fires" to verify the information provided by Uncle John).

I learned that, although underground coal fires are a common phenomenon, most people are completely unaware that they occur. How common are they? At any given time, thousands of coal veins are ablaze around the world. In China's northwestern province of Xinjiang alone, there are currently about 2,000 underground coal fires burning.
Indonesia currently hosts as many as 1,000.

Some of these fires have been burning for thousands of years; Burning Mountain Nature Reserve, for example, in New South Wales, Australia, has been aflame for an estimated 5,500 years. Other coal fires are of more recent vintage, often started through the actions of the notoriously destructive human species. But underground coal fires long predate mankind's proclivity for starting them, and many of the fires burning today are due to entirely natural causes.

New Scientist noted, in February 2003, that "coal seam fires have occurred spontaneously far back into geological history." ("Wild Coal Fires are a 'Global Catastrophe'," New Scientist, February 14,
2003) Radio Nederland added that "Geological evidence from China suggests that underground coal fires have been occurring naturally for at least one million years." (Anne Blair Gould "Underground Fires Stoke Global Warming," Radio Nederland, March 10, 2003)

And how much coal, you may be wondering, do these fires consume annually? No one can say with any certainty, but it is estimated that in China alone, some 200 million tons of coal go up in smoke every year.
That's a hell of a lot of coal. More coal than China exports, in fact.
In other words, the world's leading coal exporter loses more coal to underground fires than it produces for export.

"Very interesting," you say, "but what does any of this have to do with 'Peak Oil'?" Glad you asked. Coal is, you see, a member of the same hydrocarbon family as oil and natural gas, and it is, like gas and oil, claimed to be a 'fossil fuel' created in finite, non-renewable quantities at a specific time in the earth's history (when the stars were, I'm guessing, in the proper alignment). And yet this allegedly precious and limited resource has been burning off at the rate of millions of tons per year, year in and year out, for at least a million years, and probably much longer.

This raises, in my mind at least, one very obvious question: how is it possible that nature has been taking an extremely heavy toll on the globe's 'fossil fuels' for hundreds of thousands of years (at the very least), without depleting the reserves that were supposedly created long, long ago; and yet man, who has been extracting and burning 'fossil fuels' for the mere blink of an eye, geologically speaking, has managed to nearly strip the planet clean?

Is it not perfectly clear that that is a proposition that is absurd on its face -- so much so that it is remarkable that the 'fossil fuel' myth has passed muster for as long as it has? Nevertheless, that entirely illogical myth is the cornerstone on which an even bigger lie - the myth of 'Peak Oil' - is built. Go figure.
* * * * * * * * * *

I have much more 'Peak Oil' stuff yet to come, but for now I have to get back to watching the Olympics. The games thus far have been a thrill to watch, and the commentary is ... well, what can I say about the commentary? About the best thing I can say, I suppose, is that it is at times unintentionally hilarious. The best advice that I could offer to Costas and Co. would be to maybe try a slightly less arrogant and nationalistic approach -- especially while America's athletes are being outclassed pretty much across the board, even in sports that we invented. One nice change in the coverage this year, by the way, is that we aren't having the "medal count" constantly shoved in our faces. I wonder why that is?


(Permission is hereby granted for this material to be widely distributed and reposted, in whole or in part, provided that the content is not
altered.)

Well done.

One immediate question for you regard the coal fires: by mentioning it here, in this context, you're implying that perhaps coal (and, by extension, oil) somehow actually are renewing themselves, and you're insinuating further that 'Peak Oil' could be a flat fallacy.

Are you obliquely implying oil is somehow renewing itself, as coal appears to be doing if your information is correct?

How might oil supplies renew themselves?

and of course the greater the consumption the sooner that day will get here.

now... dr. hubbert also predicted ACCURATLY - though in his time was scoffed at too as so much CT - america's peak production 20 some odd years before it occured using the tried and true methods of science, OBSERVATION and MEASURMENT which added it up to a typical, mathmatical BELL CURVE.

anyways... you can't tell you hit peak for certain till you pasted it by a few years.

time will tell

peace

If the world was a ball of oil (and perfectly round, etc, etc),
how many years, at current consumption rates, would oil last?

(lots of calculations, volume of a sphere with a diameter of
25,000 miles, expressed in 35 gallon barrels, 1.5 Million barrels
per day, blah, blah)...

15,132,388,922,654 years.

There is precious little oil on this planet by volume.

Shell recently claimed it's reserves were smaller than forecast. Almost 20% smaller IIRC.

America reached peak oil in the 70's, that's a fact. The reason Shell's profits went sky-high is that the same oil they were pumping and selling when prices were half what they are now. Big profits there. No surprise.

You do ask a good question: Why shut down the plant if it's making money? Maybe because it is about to run out of nearby source? Maybe because Shell intends to tighten supplies? Maybe they see that more efficient cars will soon be riding the highways and their volume will be headed down, way down?

You mixed coal and oil in the same scenario. Faux-pas. They are both fossil fuels but that is where the similarity ends. The coal fires are something nobody knows the amount of yet you twisted the fires into almost saying that all the coal should have burned by now. And you show a lack of the basic knowledge of coal formation.

..."extracting and burning 'fossil fuels' for the mere blink of an eye, geologically speaking, has managed to nearly strip the planet clean?

Coal reserves are estimated to last for hundreds of years... oil has only reached Peak, not nearly, as you say "stripped clean". Nice try.

America reached it's peak in the 70's. That's a fact.

I think it's renewable.

I'm not a scientist and I have no proof, only an opinion. We're being played like a fiddle once again.

pollution controls that need to be instituted by 2004.

http://sanfrancisco.bizjournals.com/sacramento/stories/2004/08/09/daily36.html

" But Shell's ability to keep the refinery operating into next year may depend on whether it can obtain a modification of a consent decree that would subject it to financial penalties if it does not reduce air pollution emissions from the facility's heaters and boilers to a specified level by the end of 2004, Lockyer says."

They signed a consent decree with the EPA, they want out of it or a variance, this will also help them sell, as the new buyer would be under this contract as well. Cutting production might have been an attempt to lower their pollution levels.

Also the Kern oil is controlled by Texaco, who until 2001 co-owned this refinery. After they merged with Chevron they were required to sell it, Shell bought their half, but lost all the Kern Oil field contracts. So just becasue the Kern River Field is producing well, doesn't mean any of it is going to Shell.

http://www.miami.com/mld/miamiherald/business/national/8001332.htm?1c

"A consent decree, which is a binding court order that Chevron and Texaco entered into with the state in September of 2001, indicates that when Texaco sold its interest in the refinery to Shell, the refinery lost a crucial crude oil supply.

The document, obtained from the state attorney general's office, states that old contracts that tied the Kern River oil field and other Kern County heavy oil properties to the refinery are voided."


Also why wouldn't a profit driven company try to raise the price of gasoline? regardless of Peak Oil they would be doing this, if they thought it would work and they could get away with it. They think they can get away with it because crude oil prices are high, so people will be less skeptical of high gas prices, and not notice that gas prices have increased at a higher rate than crude oil.

Refineries make profits off the difference between crude oil and gasoline prices. Technically crude oil price hikes don't profit them directly, but they use that as an excuse to raise the price difference between crude and gasoline.

you left out some important facts.

For example, Burning Mountain Nature Reserve coal fire has, indeed,
been burning for an estimated 5,500 years, however it is
progressing in it's coal seam by about 1 meter per year.

here is a clip from an article on this particular fire:

http://www.abc.net.au/science/news/stories/s786127.htm

Australia is the home of one of the world's few naturally burning coal seams, Burning Mountain Nature Reserve, in northeastern New South Wales. The burning coal seam extends from the main coalfields of the Hunter Valley.

The fire burns 30 meters underground, moving at the slow rate of one meter south every year. The lack of oxygen underground means the fire burns slowly, and with 6 km of burnt area, the fire is estimated to be about 5,500 years old.

===================================================

In fact, very few underground coal fires are estimated to be
naturally occurring, so the assumption that coal has been burning
in underground coal fires by the millions of tons per year for
thousands of years is incorrect.

The concept of naturally regenerating oil (and I've never heard
this for coal) has been around for a long time, but with no proof
or even a good theoretical model of how this occurs. If it does,
then why wouldn't one run out and buy up the leases for oil fields
where are currently deemed exhausted (even after being charged with
water and detergents)... wait some number of years and, presto,
you are a rich person.

As for why Shell is not pumping oil in Bakersfield... I refer you
to your own story... first it was estimated that the field had a
reserve of 54 million barrels in 1946, then years later (1986)
it had produced 700+ million barrels (of course, the methods used
to calculate oil fields had improved greatly, not to mention recovery
techniques) and was estimated (on paper) to have 970 million
barrels remaining. So how much of this reserve is now left?
How much of the 970 million was consumed? And Shell has been
in the news recently for overstating their fields "provable"
reserves which caused a mild setback for oil company stocks
a number of months ago. Could it be that the Bakersfield field
is played out? Or that it's more expensive to go to the next level
of recovery technique, so that alternate supplies are considered
less expensive? As for the Martinez facility, it is located on
San Pablo Bay, and the oil processed there is tanker-ed in from
around the world, Bakersfield is well inland. So I can imagine
quite a number of business scenarios where closing the Bakersfield
facility makes sense, and they don't have to be either conspiracy
or stupidity (though I'm still guessing that the oil companies,
much like the electricity traders like Enron) DO game the gasoline
market... and may not be raising gasoline prices right now because
of election year politics.

they are always gamming the system but PEAK OIL is a fact of science.

when will it occur? i put my money on within this decade.

and i ain't a gambling man.

peace

The first 20 lines are interesting, then you write "If you are buying (or selling) the 'Peak Oil' bullshit, then you already have".

In a serious article, I do not expect such a broad-brush accusation. And after scanning the rest of the article, I did not find an explanation.

Simply taking the currently known reserves and the current rate of consumption, oil will be finished in around 35 years, using the figures of U.S. Energy Information Administration (http://www.eia.doe.gov/emeu/international/petroleu.html). I don't get why Peak Oil should be so far from reality.