Death Spiral for Iran?

Washington Post editorial page highlights some interesting new research:

An economic geographer at Johns Hopkins University, [Roger] Stern contends that the Iranian oil industry is actually in something of a death spiral. Iran has been missing its OPEC quota of late, and while high oil prices have masked the decline by keeping revenue up, production has been declining. Higher domestic energy demand in Iran combined with difficulty in attracting foreign investment and other economic problems, he argues, make a rapid decline in oil exports likely -- ending in the "extinction" of Iranian oil exports in 2014-15.

The Post offers up the bloggish observation that "We don't know whether Mr. Stern is right." I don't know whether or not he's right, either, and I can't find the paper where Stern makes that argument. In this article, however, Stern winds up being quoted as having policy prescriptions I agree with.

Comments

wasn't energy needs one of the reasons Iran gave for pursuing nuclear energy? is this report then support for the Iranian justification?

Posted by della Rovere | January 1, 2007 9:12 PM

It looks like it, although the money that goes into creating and defending their nuclear program (assuming purely civilian intentions) could probably renovate a lot of failing oil equipment.

What I want to know is, would the impending failure of their Oil Weapon tame Tehran or make them lash out? Obviously by occupying Iraq we've put their sword at our throat more direct ways, but the rest of the world is bribed or blackmailed with oil.

Posted by aleks | January 1, 2007 9:20 PM

Oil production as a whole will always be a death spiral. So I'm not exactly going to join the rah rahism and hope that this does the Iranians in. I suppose clapping really loud might make it happen, but I doubt it.

And Aleks, think this through, from their perspective and not from yours. Seriously, is it worth having a wealthy nation if it's occupied by another nation's army? Sooner or later, the US will invade Iran if they don't have Nuclear weapons. That makes the obtaining of nuclear weapons the primary goal of... just about every country that isn't suicidal. After we elected GWB, would you be willing to take chances or assume we'll abide by our agreements? I wouldn't deal with us, we don't seem to make agreements in good faith.

Posted by Soullite | January 1, 2007 9:32 PM

I assume a country is going to have "difficulty in attracting foreign investment" in its oil industry when it is under the military gun. Foreign companies are not going to want to come in and develop a new oil field so long as there is a chance that the US may fly in at any time and demolish half the country's production and transportation infrastructure.

Posted by Dan Kervick | January 1, 2007 9:39 PM

Again, something a lot of the people who comment in here really need to understand. GWB's term in office has drastically changed the international landscape in ways you're clearly not willing to accept.

Nobody trusts us anymore. Nobody thinks we're honest. Even if they make agreements with one government, they know a Republican government is willing to ignore every agreement any previous administration has made. They know we act only in or self interest, even in direct violation of the interests of our allies. They know we engage in practices that make half of them sick to their stomaches. This new century could have been a second American century. But it won't now. After GWB gets tossed out of office, it won't be as simple as mending a few fences. Our position in the world has gone from iffy supporter of human rights but generally decent guy, to a position of the primary threat to most nations interests and security. Don't think that won't have an increasing effect on our ability to conduct diplomacy, war, and trade in the comming decades. Non-proliferation will dead within within a decade. Having our bases in a nation will increasingly become a domestic political issue for those nations. I'm sorry guys, but the world really has changed and you'd be better off realizing that than continuing to think that it hasn't.

Posted by Soullite | January 1, 2007 9:41 PM

The paper is here.

Posted by ogged | January 1, 2007 9:48 PM

wasn't energy needs one of the reasons Iran gave for pursuing nuclear energy? is this report then support for the Iranian justification?

Not only that, that's the advice any economic advisor to a petro-economy is going to trot out first off. Needed or not, every bit of oil that can be turned into a commodity vs. used for internal energy consumption is profit.

Posted by Ed Marshall | January 1, 2007 10:02 PM

I think this paper came out a week or so ago; as I recall, the winger line was that Iran must want nukes so that it can invade Saudi Arabia for its oil.

Posted by ogged | January 1, 2007 10:05 PM

> Not only that, that's the advice any economic
> advisor to a petro-economy is going to trot
> out first off. Needed or not, every bit of
> oil that can be turned into a commodity vs.
> used for internal energy consumption is profit.

Exactly. Oil is going to get exponentially more valuable over the next 50 years (hyper-exponential over 100 if it lasts that long) so if you have excess oil burning it to produce electricity when you can afford to build nuclear _power_ plants is foolish.

Cranky

Posted by Cranky Observer | January 1, 2007 10:40 PM

I think the non-crazy argument against Iran's economic need for nuclear power is that Iran currently burns off enough natural gas as a waste byproduct from oil production to supply all of its electricity needs if it harnessed it instead. And unlike oil, you either need very expensive pipelines or LNG conversion facilities to export natural gas for hard currency.

Posted by Hank Scorpio | January 1, 2007 11:16 PM

"An economic geographer at Johns Hopkins University, [Roger] Stern contends that the Iranian oil industry is actually in something of a death spiral. Iran has been missing its OPEC quota of late, and while high oil prices have masked the decline by keeping revenue up, production has been declining."

Clearly, the Jews are to blame.

Posted by Linus | January 2, 2007 12:01 AM

Cranky:

"Exactly. Oil is going to get exponentially more valuable over the next 50 years (hyper-exponential over 100 if it lasts that long) "

Huh? Name one other commodity that has increased in price exponentially over a similar period of time, ever.

Posted by vg | January 2, 2007 12:53 AM

Huh? Name one other commodity that has increased in price exponentially over a similar period of time, ever.

Has there been another commodity that (1) has no at least equally usable and valuable replacement available and (2) exists in finite quantities that are on the way to being exhausted within a few decades?

Of course the Peak Oil concept isn't even about the exhaustion of petroleum as a resource. It's about the fact that the rate at which it can be produced is likely to dip below demand, even if there's still a lot of it in the ground.

Posted by jimBOB | January 2, 2007 2:11 AM

has no at least equally usable and valuable replacement available

There are such replacements. The Germans made ersatz petroleum from coal in WW2. Recently it's been done using slaughterhouse waste. These methods aren't commercially viable at present precisely because it's still less costly to pump petroleum from the ground. But they are existing, proven technologies which will put a ceiling on the price of petroleum for some time to come. That's before considering new technologies developed in response to higher prices.

Posted by David Tomlin | January 2, 2007 2:48 AM

David Tomlin

Gasification of coal and agricultural waste reclamation can provide replacement energy on the same scale as current petroleum production? Color me skeptical.

Posted by jimBOB | January 2, 2007 3:19 AM

"Has there been another commodity that (1) has no at least equally usable and valuable replacement available and (2) exists in finite quantities that are on the way to being exhausted within a few decades?"

No, but this has been claimed about other commodities, which was my point. Aren't we supposed to be starving due to the lack of agricultural land and suffocating due to the lack of fresh air by now?

Posted by vg | January 2, 2007 3:33 AM

This was also the concensus of five Iran experts who appeared on NPR's "To the Point" recently. Namely, that we just have to wait them out for a couple of years while their economic problems worsen, at which time Bush will also be gone.

Posted by bob h | January 2, 2007 7:26 AM

" And Aleks, think this through, from their perspective and not from yours. Seriously, is it worth having a wealthy nation if it's occupied by another nation's army? Sooner or later, the US will invade Iran if they don't have Nuclear weapons. That makes the obtaining of nuclear weapons the primary goal of... just about every country that isn't suicidal. After we elected GWB, would you be willing to take chances or assume we'll abide by our agreements? I wouldn't deal with us, we don't seem to make agreements in good faith.
Posted by: Soullite on January 1, 2007 09:32 PM"

It hardly passed without my notice that we invaded the weakest, least threatening of the Axis of Evil. Still, the fact that you or I would be pursuing nuclear weapons in their position doesn't prove that they are. It made absolutely no sense to me for Iraq not to have WMD in 2003, but they didn't.

Posted by aleks | January 2, 2007 8:25 AM

Gasification of coal and agricultural waste reclamation can provide replacement energy on the same scale as current petroleum production?

http://www.eia.doe.gov/neic/infosheets/coalreserves.htm

'Worldwide, coal is the most abundant of the fossil fuels, and its reserves are also the most widely distributed. Estimates of the world's total recoverable reserves of coal in 2002 were about 1,081 billion sort tons. The resulting ratio of coal reserves to production exceeds 200 years . . .'

According to Wikipedia, U.S. energy consumption is about 40% petroleum and 23% coal.

http://en.wikipedia.org/wiki/Energy_use_in_the_United_States#Current_consumption

So, about a quarter of U.S. oil consumption could be replaced by a less than 50% increase in coal consumption. Globally, such an increase could be sustained for at least 130 years.

Most coal consumed in the U.S. is used to produce electricity. So nuclear, solar, and other energy sources suitable for producing electricity can substitute indirectly for petroleum by substituting directly for coal.

Posted by David Tomlin | January 2, 2007 8:58 AM

Matt, I can send you a copy of his paper if you'd like. Send me an email.

Posted by Noel Maurer | January 2, 2007 9:14 AM

David Tomlin

Thanks for doing that research. I'm wondering if availability of coal is the only constraining factor here. Doesn't the gasification process use energy? If so, then you won't be getting a 1-1 yield of energy production by turning coal into gas. Further, note that either gasifying or burning the coal doesn't do anything good for the greenhouse gas situation. We might find we need to limit doing either if we want to prevent catastrophic climate change.

Posted by jimBOB | January 2, 2007 11:00 AM

OK, you guys should check out www.theoildrum.com, a peak oil site firmly entrenched in the reality based community. You can find exhaustive forecasts, statistics, analysis and discussion of Iran or any other oil producing nation. But to touch on a few points from above that bear repeating:

David Tomlin and vg give short shrift to the uniqueness of oil as an energy source. Crude oil is liquid, hydrophobic, stable, and has incredibly high energy density. It is therefore relatively easy and safe to get out of the ground, transport by pipeline or boat (i.e. efficiently), and convert to myriad other poducts, all at a significant profit. The claims of others concerning different commodities do not change this. We did not switch from coal to oil because we were running out of coal, but because oil was much better on all of these metrics than coal. There is no guarantee that we'll find something "better" before we run out of oil. Lots of very smart people have been thinking about how to do just that and have so far failed. This is a marked contrast to our switch from coal to oil: no one was trying to come up with an alternative to coal, we just kind of stumbled upon it. So, given the unliklihood of finding a better (energetically and economically, if not environmentally, politically, or socially) energy source than oil, it is actually the case that oil provides a floor price for any alternatives rather than that alternatives provide a ceiling for oil.

This is not to say that alternatives won't become economically feasible, but that they all provide less bang for our buck than petroleum has to offer and the implications of that fact are that we will all have to get used to using a whole lot less energy than we are accustomed to using now.

As to our "200 years" of coal reserves: that's at current consumption levels. If we substitute all of our curent oil useage with coal, 200 quickly turns into 30, and this substitution is still far from ideal from an efficiency, economics, environmental and versatility standpoint. Once again, it's not that coal gasification won't be useful or viable, it's just that we're not going to be able to scale it to anywhere near what we do now with oil. And, not unlike the situation we face with oil currently, a bunch of the coal out there is a whole lot harder (more expensive) to get out of the ground than the stuff we've already gotten.

And, by the way, the reason we're not "starving due to the lack of agricultural land" today is through the continuous exploitation of fossil fuels (petroleum=mechanization and transportation, natural gas=fertilizer).

Posted by DMonteith | January 3, 2007 12:47 AM

If we substitute all of our curent oil useage with coal, 200 quickly turns into 30 . . .

An absurd hypothetical. No one claims all the oil presently under the ground is going to disappear tomorrow morning.

Where do you get 30? Repeating the simplified calculation I made above gives just over 70 years of proved coal reserves even for that extreme contingency. That assumes no substitution of nuclear power for coal-generated electricity.

Posted by David Tomlin | January 3, 2007 8:14 AM

Assuming this is correct, and that Iran's power could erode as its oil supply dwindles, it was very nice of us to hand them Iraq's oil, which, once Iraq and Iran are transformed into Shiite superstate Iranq, should last them for a good long while.

Posted by aaron | January 3, 2007 2:01 PM

What's kind of ironic is that part of the reason why Iran's oil is dwindling, making nuclear power an even more attractive option, is because of US sanctions laws, that were passed under pressure by AIPAC (the American-Israel Public Affairs Committee) during the CLinton Administration. Talk about shooting yourself in the foot!

Iran's nuclear program was always justified on the grounds that Iran has to export oil to earn a living and can't afford to burn it at home. That was why the US supported and encouraged Iran's nuclear program in the first place. Indeed, according to the Wash Post, several members of the current administration supported Iran's nuclear program in the past.

Bush and co. now claim that Iran can't possibly need nuclear power for civilian purposes because it has so much oil. Other studies had shown otherwise. Well, now this study again confirms it: Iran has a legitimate case for nuclear energy. And Iran is hardly the only country that has embarked on a nuclear energy program recently.

And in the meantime, not only has this study vindicated Iran's economic argument, but there is still no sign of a nuclear weapons program in Iran either, and the people of Iran (who strangely enough, love their country too) are united in their support for their nuclear program, thus allowing the hardliners there to score nationalism points too.

Great. Shot the other foot too!

Posted by hass | January 4, 2007 12:43 AM