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REFLECTIONS ON OIL @ $ 140.

00 a barrel
mauesj@gmail.com
ABSTRACT
The starting point of this work was to attempt to answer the following questions:
1 - Oil at $ 140.00 in 2008 is really expensive?
2 - If positive, why Alternative Energies calls do not turn into reality?
3 - What is the source of energy that would be better able to replace oil in the
medium term?
Our conclusions were that oil at $ 140.00 is not expensive and therefore
alternative sources of energy are still in the same situation they were in the late
70s / early 80s. They continue to be alternatives.
Besides not being expensive, it becomes clear that in the short term
hardly a barrel remained at a level of $ 140.00 situ air must be at a
level around 15-20% down or even returning to levels less than $
100.00.
Regarding the above statement can not forget the huge influence suffered by the
oil with facts generated by political instability and therefore able to completely
reverse the price scenario in the previous paragraph.
A condition to be met by a new source would be, like oil, an energy available in
large quantities and not localized form and economically acceptable calorific
value.
Despite recent developments of energy like wind, solar, geothermal, biomass
and even different ethanol, none of them meets the above requirement.
What we perceive analyzing readily available data, is that apparently only the
Coal and nuclear energy generated by fission m can take charge of this task.
It may seem ironic, and it remains that the current horizon energy solution for
the world can be an energy source once widely usad the (Coal) and almost
completely replaced by oil threatens to replace it today.
One possible solution would be present in the past and not the future
development of different and new energy sources.
With the new technologies now obsolete coal would again have the same
importance it had for nearly 200 years in the future waiting to be replaced again,
this time possibly permanently, by a further advantageous energy source than
oil.

- A LITTLE HISTORY

Been known since biblical times, we can chose the year 1854 as the year of the
beginning of the oil industry, known as Stone oil, then found in Pennsylvania, and
believed to be possible to process it to produce a fluid that would be burned in
lamps as "illuminating" in an advantageous replacement for O oils from coal.
The society of the mid-nineteenth century desperately needed an "illuminating"
cheap and high quality.
Names like George Bissell, Benjamin Silliman, James Townsend and Edwin L. Drak
and among others were the responsi ble for cria will of the oil industry in
America and therefore the world.
When in August 1859 Dr ake found oil in Titus ville, Pennsylvania he certainly did
not imagine the enormous impact of this discovery in the history of the world.
A simple "Illuminating" the oil, due to its versatility and range as energy and raw
materials changed and shaped the world we know.
Does not exist in the history of mankind a product that has been the importance
of oil.
Its high power Calorif ico, ease of transport, storage and handling, versatility of
uses (energy and raw materials), relative simplicity of processing (a single plant refinery - responsible for the production of all derivatives), acceptable
environmental impacts its exploration and production, abundant availability and
attractive prices, not only built immense fortunes and a gigantic industry as
mainly shaped the world as we know it today.
Revolutionized transport, industry and agriculture with fertilizer production
allowing urbanization happen quickly and irreversibly.
No oil or other form of energy and source of raw materials with their
characteristics, certainly the big cities would not exist and would still be living in
over the next s areas of food production smaller units.
The world oil production increased from 59.48 million barrels per day in 1973 to
81,533 in 2007 (37% growth).'s USA, responsible for 25% of world oil
consumption, produce only 33% of its needs.
In 2007, China's share in world energy consumption grew by 52%.
The world oil consumption grew 1.1 0% from 2006 to 2007 while the press
laughed energy was 2.4% 0.
In 1987 the proven oil reserves were estimated at 910.20 billion barrels growing
to 1237.80 in 2007 of which 61% in the Middle East.
Considering the reserves at the end of a given year and the production in the
same year, we get the same duration in years if production remain at the same
level (ratio R / P).
For 1987 this ratio indicated 41 years while in 2007 we had 41.6 0 years.
Also for 2007, the coal indicated more than 130 years and natural gas 60 years.
Today, with the advent of mobile phones, computers and the Internet, we find
that the telecoms were responsible for what we usually call globalization, but

that would not have existed if before the oil and its derivatives have not molded
the world to allow their need and existence.

- IMPORTANT EVENTS OF THE OIL INDUSTRY INCLUDING SOME


OTHER ENERGIES AND OTHER RELEVANT FACTS
- Mid-sec. XVIII (1760?): Starts in England called the Industrial Revolution as
having abundant energy based on coal.
- 1833: Prof. Mr. Benjamin Stillman distills experimentally raw.
- 1855: The Chemical Engineer Benjamin Stillman Jr. s establishes the bases of
industry in Pennsylvania nia to find that the oil could be commercially distilled to
produce lubricants and kerosene for lighting and cooking.
- 1859: beginning of the stria chemical ind in the USA in Titusville, Pennsylvania
with the drilling of 1 well by Colonel Drake.
- 1867: invention of the internal combustion engine by Nikolaus Otto.
- 1870: founding of Standard Oil (Rockefeller).
- November 8, 1880: Edwin Drake, the man who drilled the 1 producing well
petrol and dies in misery.
- 1893: Rudolf Diesel creates 1st diesel engine that works efficiently.
- 1907: founding of the Royal Dutch Shell Group of Companies.
- 1908: launch of the Ford T (start of Automobili stica industry) at the price of
USD $ 850.00 Assuming an annual inflation rate of 2.5% for the period
1908/2008, comes 2008 at a price of $ 10,000.00.
- 1911: breakup of Standard Oil by the American Government (Mobil, Exxon,
Atlantic, Chevron, Amoco and others).
- 1914/1918: 1st World War.
- 1920: begins in Brazil the assembling of Ford T.
- 1925: GM (Chevrolet) initiates the assembly of cars in Brazil.
- 1927: discovered in Kirkuk, Iraq 1st commercial oil well in an Arab country.
- 1929: crash of the New York Stock Exchange.
- 1933: ARAMCO (Saudi government).
- 1937: 1st edition of The Well of the Viscount - Geology for Children by Monteiro
Lobato.
- 1938: Creation of the National Petroleum Council (NPC).
- 1939/1945: 2nd World War.

- 1944: World Bank.


- 1945: IMF.
- 1945: UN.
- 1951: 1st nuclear fission reactor to produce electricity although in very small
quantities.
- 1953: PETROBRAS.
- 1956: Mr Hubbert (one geophysicist of Shell USA) and the theory of Peak Oil
(the point where the maximum production of crude oil is reached and irreversible
decline starts).
- 1956: Suez Canal crisis of bringing concerns to the oil market in Europe.
- 1957: 1st commercial nuclear reactor fission.
- 1957: start of the Brazilian automobile industry with the production of DKW two
times and three cylinders.
- 1957: Felix Wankel puts into operation the 1st rotary engine "piston" or Wankel
engine.
- 1957: First artificial satellite Sputnik..
- 1958 oil becomes an industrial fuel cheaper than coal.
- 1960: OPEC (predominantly an Arab organization).
- 1961: Yuri Gagarin - I Vostok.
- 1965: 1st gas discovery in the North Sea.
- 1970: 1st large oil discovery in the UK sector of the North Sea. Production
started in 1975.
- 1971: USA, according to Hubbert peaks.
- November 8, 1973: right ear of John Paul Getty III delivered to a newspaper in
Rome, convincing his father to pay a ransom of $ 2.9 Maize es.
- 1973: 1st shock (Yom Kippur War). High prices of USD 2.90 a barrel to 11.65 (in
cash).
- 1974: start of construction of Itaipu.
- 1975: PROALCOOL.
- 1976: start of production from the Campos Basin.
- 1976: Denmark installed the 1st commercial wind turbine connected to the
public power grid.
- November 1976: Brazil signs agreement with Germany to build 08 nuclear
reactors. The truth is no q ue until today was really ready (neither I nor Angra I
Angra II). Angra II at a cost of $ 7 billion for a 1,300 megawatt reactor is still not
ready and could be purchased today for about $ 1.5 billion!

- 1977: start of commercial operation of the Campos Basin field with Anchovy.
- 1979: 2nd shock (due to production stoppage Iranian fundamentalist revolu
will + action Arah bia Arabia aiming at increasing target price of oil) prices per
barrel reached the mark of $ 35/40 Seizure in the world with the feeling that the
end of oil is near.
- 1979: start of operation of the Santos Basin.
- March 1979: Nuclear Power Plant accident at 3 Mile Island in the USA.
- 1979/1983: intense activities around the world, studies of alternative energies.
- 1981: IBM announces its 1st PC.
- 1982: inauguration of Itaipu (08 years of construction). 20 generating units,
14,000 MW of installed pot NCIA provides 19% of the energy consumed in Brazil,
total investment of $ 16 billion (US $ 1,143 / kW running) against US $ 5,385 /
kW of Angra II not working.
- 1983: price of crude begins to fall and reaches values that definitely unfeasible
Alternative Energies.
- 1986: Oil back to the level of $ 20.00 (currency).
- April 1986: accident at the Chernobyl Nuclear Power Plant in Russia.
- 1990: i nvaso of Kuwait by Iraq. Petr leo back momentarily to $ 40.00.
- 1990: Creation of the World Wide Web (www).
- 1991: Brazil (FAPESP) makes his 1st Internet connection.
- 1993: Internet grows 341,000% in 1 year.
- 1994: Real Plan.
-1997: Brazil starts to produce more than 1 watergrass the barrels per day.
- 1998: founding of Google.
- November 8, 2000: The BBC airs the "The Last Oil Shock" program.
- September 2001: aque at the twin towers and the gono Penta and the price of
oil or moves.
- October 2001: commanded by God (! told by Bush), Bush invades Afeganist
the Oil or move..
- 2002: Creation of the Euro.
- March 2003: top again following divine commands (again his statement), Bush
invades Iraq again oil does not react.!
- 2003: the year that Brent Spot Price FOB USD per barrel is greater
than the Euro value per barrel highlighting the growing weakness of the
dollar from 2000 to 2007 prices rose 152.76% at $ 70.29% against Euro.
.

- 2005: according to the theory of the world Hubbert peaks.


- 2005: Brazilian government establishes the obligation of adding a% biodiesel to
diesel sold to consumers (2% in 2008, reaching 5% in 2013) minimum.
-2006: Estimated 92 million websites online.
- November 2007: anunciad officially Petrobras's Tupi field in the Santos Basin
are estimated at 12 billion boe (as it includes oil and gas) reserves. Beginning of
the popularization of the term pre-salt.
- December 2007: Brazil reaches the milestone of producing 2 million barrels per
day.
- 2008: After 25 years of relative stability in the price of crude at very low levels
(mostly from this period with values less than $ 20.00), the feeling Petro leo is
eternal and almost total interruption of studies Alternative Energy, is broken the
barrier of $ 100.00. A shock 3rd?
- 2030: Hubbert peak expected for Natural Gas.
- 2150: Hubbert peak expected for the Mineral Coal.

- OIL INDUSTRY: 04 MOMENTS TO BE UNDERSTOOD


We can simplify and divide the history of oil in 04 distinct phases.
The 1st time occurs between the initial boom when oil are pioneers (1859) and
gave its chemical ind stria start until the 70s when the two shocks that occur,
legitimized by an organized and strong OPEC raised the price of crude to values
up to $ 40.00 a barrel, unimaginable when compared with values until the Enta
less than $ 3, 00, causing a wave of panic until then unseen.
As people have never thought about it, came the certainty that oil was running
out and that the world would go through s sary difficulties (Lula had not yet
been elected, so it was believed that the worst had already arrived).
Within this 1st time it is worth mentioning the period between 1948 and 1972,
during which:
- Triples consumption in the USA out of 5.8 0 to 16.4 million barrels per day 0,
- Western Europe demand increases 15 times going from 970,000 bpd to 14.1
million and 0
- 137 times the consumption in Japan increases 32 thousand barrels per day to
4.4 million 0.
Then we have the 2nd time which is exactly the period of the two oil shocks
(1973/1979) with the barrel in the first instance out of $ 2.00 to $ 11.00 and then
the p ra $ 35.00 / 40, 00 and the world into a panic.
Then comes the moment when 3rd in 1983, and then more strongly in 1986, the
price per barrel falls fi ing until 2006 peak of $ 3 .00 but most of the time below $
20.00. Initiatives a more substantial price increase in 2007 is reached when the
level of $ 70.00. The calm of this period (1983/2007) was affected only in 1990
when Iraq invaded Kuwait and oil fires briefly to $ 40.00.

Now comes the 4th moment is broken when in 2008, consistently, the barrier of
$ 100.00 and see the questions:
- 3rd shock?
- Because the world is not reacting to this new price level?
- Alternative energies?
- What is the horizon length of oil reserves? Hubbert was right?
- Expensive oil or cheap dollar?
- Brazil OPEC???
Now what?

-? WHAT ARE MODELS AND BECAUSE OF THE DIFFICULTY


(INABILITY?) We do FORECASTS AS ENERGY AFFAIRS
First of all let's understand one thing: panic is a function of perspectives /
perceptions than properly because of price or other specific factors. The society
does not react logically, Cartesian and consistently!
Second, society is a living being and therefore has a curve of experiences and
learnings that changes our reactions to the same events at different times. It's
like we had been vaccinated and therefore are immune to panic due to the same
disease (price). The problem is to determine to what extent immune.
Third, besides the immunity, has the learning that happens within institutions
with the creation and development of skills and mechanisms making them more
agile and efficient in the correct responses to the difficulties that arise. Does
today would have a crisis in the financial market as we had in 1929? Q ue not
believe!
Room: despite the immunity and learning can NEVER forget the Entropy that at
any time, without prior notice and without our control, may decree the onset of
chaos. Systems self regulate and adjust according to universal laws, no human
will and not subject to any parents or legislators ideology. Ie a possible or
eventual crisis in global financial merchand could never be equal to 29 but much
worse!
Before entering the final part of this work which, based on some numbers, try to
show q ue is really happening, it is important to talk a little about the concept of
models vs. Reality and how this impacts studies, conclusions and decisions on
energy.
An Excel spreadsheet is a template.
Any equation by simpler q ue is (v = s / t) is a model.
After all q ue is a model?
A model is nothing more than a mathematical explanation of a reality seeking to
understand it, monitor it, and if possible, act on it.
The more complex the reality is more difficult to establish a model.

What we need is to build a model:


- Knowledge of the variables present in that particular subject / q ue system we
want to study.
- Knowledge of the initial conditions and the same
- Knowledge of the law or laws (equations) q ue govern the evolution of the
variables from the initial conditions so we can determine their values aq uer q
ual time in the future.
Easy is not it?
Let's walk a little more.
Reality: renovation of a house.
Model to determine the time and cost of this reform.
Anyone q ue has already faced this experience, knows the impossibility of hitting
within an acceptable range of error, both the value q uan to the time of the work.
Generally spend more in a longer time.
I need to say more?
A simple model is the uniform rectilinear motion (reality) established by the
equation v = s / t (model).
If reality is really simple we can determine, using the model with absolute
certainty and preci that are coming out of a city s A to B in the city will be 13:00
to 14:00 if, in Getting around 60km / h, they distarem between another 60km.
Even though there are unforeseen q ue this trip, if they are not many and not as
relevant, the time of arrival is calculated with a precision more than acceptable.
The problem with most of the realities around us is q ue q ue they are so
complex q ue can not even identify the variables init ial present. I say initial
because we consider unforeseen as nothing less q ue variables present in reality,
but q ue could not initially identify.
Even managing to identify the variables, we face the difficult problem of figuring
out how they interact with each other and therefore are not able to reach an
equation (model) that describes such a system.
Add to this another typical complication of complex realities: variables that can
be a cause and effect also continues q ue feedback modifies the system so
UNEXPECTED ada and often disturbing, being affected simultaneously and at all
times by numerous agents (individuals, jury tips and governments) s spread
around the world and with varied interests and often conflicting.
The maximum q ue then we can achieve is a description of a possible scenario
for certain reality, seriously obtained from the analysis of the best data available
through a consistent reasoning, but above all honest making use of a suitable
methodology to goals.

Energy, as well as other issues in fashion as stock exchanges, greenhouse effect,


ozone layer, global climate change, environment and species extinction, ..., falls
in the category of very complex realities and therefore difficult to model.
The higher the complexity of a system that can be defined by its number of
variables, greater instability and therefore more difficult to predict.
If not even the past is often known correctly, say q ue of this and more of the
future?

- BRAZIL: A NUMERICAL ANALYSIS SUMMARY


Well, enough of philosophical concepts and let the numbers and its conclusion
es.
Before we make clear the fundamental question of this work:
- Because with oil at $ 12 .00 / 140.00're not watching the problems of the late
70s?
We have three possible situations:
- 2008 is the price, in real terms, below the prices prevailing during the period of
two shocks.
- Is at the same level.
- Is above.
In 1 case the answer to our question is immediate.
For the 2nd case we need to elaborate a bit more to understand why.
In the 3rd case the answer will depend on some speculation.
Based on what has already been said about the 4th time in the history of oil, we
can say with reasonable certainty that the price level to trigger a new crisis (3rd
shock) to be superior to the two previous shocks.
To simplify the model, we take Brazil as an example and consider the conclusions
valid globally.
Two issues are important in this evaluation:
- Actual price variations and
- The increase or decrease in the efficiency of energy use.
Per odo considered 1997/2006.
At 1997 the Brazilian GDP grows u 24.59%, from 939 147 million for 1170. 043
million.
In this same period the energy consumption increased 22.82% from
161.029 million to 197.779 million TEP TEP (tons of oil equivalent)
indicating that the country was more efficient in this period, having
spent 1.42% less energy per unit of GDP .

In between oil consumption and energy left to 76.481 million 80.153


million TEP TEP which means an increase of only 4.80%. Mere naked
This shows a significant increase in the efficiency of using oil as energy
with a decrease of 15 , 88% in their use per unit of GDP.
Adding to the previous installment of the mere naked Natural Ga s, the
decrease per unit of GDP is at 5.82%, from 99,918 to 85.155 million
TOE.
In either case the conclusion is only one: Brazil in the period 1997-2006
has become more efficient in energy use.
Let us now examine the ratio net oil imports (including derivatives) with GDP. For
this part of the work was considered the period 2000/2007.
All figures below in millions of $ currents.
GDP
- 2000: 644984
- 2007: 1.2955 million
IMPORT OF LIQUID PETRO OIL AND DERIVATIVES FOB EXCLUDING GAS
NATURAL
- 2000: 5,520 (0.86% of GDP)
- 2007: 2,324 (0.18% of GDP)
IMPORT OF LIQUID PETRO LEO ED ERIVADOS FOB INCLUDING NATURAL
GAS
- 2000: 5,704 (0.88% of GDP)
- 2007: 4,107 (0.32% of GDP)
Again we prove the improvement of efici NCIA en ergtica the Brazilian
economy could be explained by different factors such as:
- More efficient industrial processes
- Energy Consumers (refrigerators, stoves, ...) more efficient equipment
- More efficient automotive engines
- Increased participation of "non-smoking industries" (industries and services
linked to IT and telephony) in the economy
In 2006 the following are the plots for the total Brazilian energy consumption:
- Oil: 40.53%
- Electricity: 16.96%
- Sugar cane bagasse: 12.24%
- Wood: 8.30%

- Natural Gas: 7.41%


- Other renewables: 2.34%
For the period 1997/2006 the following were the percentage growth of different
energy sources:
- Natural Gas: 197.20%
- Other energy: 29.34%
- Oil: 4.8 0%
- Total: 22.82%
It is interesting to observe aq uebra Item Other energies:
- Ethanol: - 6.11% !!!
- Electricity: 32.38%
- Sugar cane bagasse: 45.18%
- Other renewables (Biodiesel and E lica?): 94.63% (large growth yet irrelevant)
CURRENT PRICES OF THE BARREL OF OIL PAID BY BRAZIL
- 2000: 30.47
- 2007: 75.30

- A FIRST CONCLUSION
Here we come to two very interesting and significant numbers.
Q ue for the net oil import in 2007 reached the same percentage of 2000 GDP,
the barrel should be:
- $ 200.00 without considering the natural gas
- $ 350.00 US considering the natural gas
Looking only for numerical findings we see that we are still a bit distant in terms
of prices that characterize a 3rd shock (I'm expanding the beads made of
Brazilian reality for a global context).
But these numbers and statistics are only part of the answer because we know
the enormous interdependence in oil prices not only in the economy as a whole,
but also in politics and psychological reactions of society.
I believe it is very intuitive claim that serious problems occur in the society well
before the $ 3 50.00 being perhaps the s $ 200.00 the new level of the new oil
shock.

- A SECOND CONCLUSION
Given current technologies, which is real can substitute for oil?
My bet based on available data and history, is coal and nuclear energy.

In the history of mankind coal reigned much longer than oil (198 years versus 60
years).
Ok, the impacts of oil on the economy were much larger, long and deep.
And because the coal?
1 - abundant Reservations
2 - Possibility of large and rapid technological advances in both exploration &
production and in use due to all that have virtually stopped in the mid-50s when
oil finally dethroned coal. Plenty of room for all major developments in regard to
coal including items related to the environment ie there.
3 - On a scale of Lower Calorific, coal lies in the range 2950-5700 kcal / kg while
the oil falls to 10,180. No doubt a huge disadvantage. However second only to
the Natural Gas and Coal Plant that, in environmental terms, has far more
problems than the Mineral Coal.
And Nuclear Power?
Explosions reactors, nuclear waste contamination, apparently ... until even as an
environmentalist James Lovelock surrendered to this form of energy as opposed
in recent decades by environmentalists and pacifists.
Current technologies seem to guarantee safe operation of reactors and handling
of waste produced by plants to make fission reactors an attractive option for
electricity generation.

- FINAL COMMENTS
When the new level will be achieved and how much will it actually does not
matter because this happened like it or not, because until the oil reservoirs with
low production cost are all already in operation and new discoveries occur in
areas where exploration costs will superior even to those of the North Sea.
Just as a reference, in 1970 the development of a field of 60,000 barrels per day
in typical conditions of the Middle East was $ 20 million. In 1977 the
development of a similar field in the North Sea over $ 500 million.
The question that really matters is whether we will be prepared when the time
comes which translates in a very simple question:
- If the world has developed a serious and consistent way other forms of energy,
the threshold is reached without characterizing a 3rd shock otherwise we may
attend a worse situation, and this time much longer, that lived in the late 70's /
early 80's.
Interesting to note that according to statistics from British Petroleum, the
"alternative energy" represented 15.10% of total energy consumption in the
world in 1973 rising to 16.40% in 2005.
All suffer the consequences of a new shock that would be larger for poor
countries without oil, further increasing inequalities and fueling greater tensions
between countries / blocks leading the world to inevitable wars and ideological
confrontations fueling the escalation of terrorism.

It is the universal communications that will bring peace and development to the
world, but a new era of global availability of energy at affordable prices and
acceptable environmental costs, enabling the improvement of living conditions of
large pa rt of the world's population today still jettisoned the benefits brought by
economic growth hese ne nearly 175 years of oil, of which 60 years almost
absolute hegemony.
Jurandyr Arone Maus - mauesj@gmail.com
09 / August / 2008
SOURCES:
- Yergin, Daniel, The Prize: The Epic Quest for Oil, Money and Power - 1990
- Several Web sites.
- Central Bank - Central Bank of Brazil
- Ministry of Mines and Energy - National Energy Balance
- ANP - National Petroleum Agency
- BP - British Petroleum
- IEA - International Energy Agency