Arthur Berman: "BRICS+, Strategic Petroleum Reserve, and Metaphysics" | The Great Simplification #92
What this covers
(Conversation recorded on October 5th, 2023)
On this episode, Art Berman returns to give a broad update on the state of global oil - from BRICS+ and shale oil to the Strategic Petroleum Reserve and oil investment. As Art says, ‘oil is the economy’ and understanding the complex dynamics of the oil market provides insight into the entire economic system. How do geological luck and foreign policy create the global stage for oil markets? What is the Strategic Petroleum Reserve, have we been misusing it, and does it matter in comparison to larger energy policy blunders? What are the current dynamics affecting oil prices and how will this affect the long term out-look of oil availability?
Please note: this episode was recorded prior to the Israel/Palestine events of last weekend.
About Arthur Berman:
Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector.
More TGS Content with Art: https://youtube.com/playlist?list=PLdc087VsWiC5mVwqTJYiIZEkfGcj2U9Cd&si=7NlKtpq9F-3C2g8G
For Show Notes and More visit: https://www.thegreatsimplification.com/episode/92-art-berman
00:00 - Episode highlight 00:33 - Introduction to Art 02:38 - Overview of the current world oil situation 09:16 - Alternative oil currency to the petrodollar? 11:01 - Effects of oil producing countries lowering their exports 14:38 - Growth in North American oil 16:33 - U.S. foreign policy in oil producing countries 24:05 - Energy blindness in political leaders? 27:31 - Shale oil in Europe 34:12 - Permian and Saudi Arabia 38:13 - Oil company profits 41:10 - US decline rates 48:21 - Relationship between oil and the economy 58:31 - Looking at the bigger picture 1:05:19 - U.S. Strategic Petroleum Reserve (SPR) 1:08:56 - Draining the SPR 1:16:07 - Art’s advice to listeners 1:19:38 - Advice to young people 1:22:10 - Career advice for young people 1:25:31 - What Art cares most about 1:27:21 - Magic wand 1:29:13 - Future conversations
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Global oil supply is entering structural decline due to geology and underinvestment, while OPEC+ production cuts and geopolitical fracturing of US-Saudi relations are accelerating energy scarcity; energy descent and lower material throughput are inevitable, requiring societal adaptation rather than false technological solutions.
- OPEC+ has removed 4 million barrels/day from global supply through deliberate cuts, masking underlying depletion and setting up price shocks that will constrain demand and economic growth
- All global oil production growth since 2010 came from North American shale; conventional fields are in net decline, and shale itself faces geological and investment constraints
- US foreign policy blindness toward energy as the core strategic interest has fractured relationships with Saudi Arabia and Russia (42% of global exports), creating geopolitical concentration risk
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US shale and Canadian tar sands exist because of geological luck; the US and Canada happened to have unconventional oil deposits with commercial potential, while Europe and most other regions have shale deposits that are either not marine (and thus lacking organic content for oil generation), at insufficient burial depth, or located beneath populated areas, making them commercially inaccessible regardless of geology.
“The United States got real lucky. I mean, the Middle East got lucky on conventional oil. The United States and Canada got lucky on unconventional oil. There's no good reason for it. It just is.”
A single barrel of oil, depending on conversion efficiency, provides the equivalent energy output of 4-5 years of human labor; thus, each person has 300-500 'fossil workers' providing labor, and raising oil costs creates a leveraged multiplier effect on productivity and living standards.
“a barrel of oil does, depending on the handicap for efficiency, four or five years of our labor, so we have between 300 and 500 billion fossil workers added.”
BRICS nations plus Iran and Brazil now account for over 50% of what is available to purchase in the global oil market, a dramatic consolidation of export capacity control among non-Western nations.
“with the addition of Iran, and Brazil, and UAE, along with Russia and Saudi Arabia, the BRICS, or what's being called BRICS Plus nations now account for over 50% of what's available to purchase in the global oil market.”
High oil prices are described as 'the silent killer of economic activity' based on 40+ years of empirical observation showing that episodes of high energy prices have historically triggered recessions and economic contractions, particularly in developing nations.
“I made a slide that I sent to you that I think its title is something like high oil prices are the silent killer of economic activity. And it's not a tagline that just sort of sounds good. It's an empirical observation from 40 some odd years of doing this kind of work, and looking back and saying, well, has this ever happened before?”
In the 1970s-1980s, high oil prices triggered expensive exploration in remote regions (North Sea, Alaska, Mexico, Siberia), leading to a glut, oversupply, and 13 years of low prices, but subsequent exploration was forced into increasingly difficult geology (deepwater), with no geographic alternatives left, illustrating a pattern where each boom-bust cycle pushes extraction into more marginal resources.
“When oil prices got super high back in the 1970s and the very earliest part of the 1980s, companies went and did a lot of expensive exploration in places like the North Sea, in Alaska, in Mexico, in Siberia, places that they knew about forever, but would not have gone there at lower oil prices. They discovered a whole bunch of oil. We had a glut of oil.”
Jeffrey Brown's net export philosophy (circa 2006-2007) correctly predicted that as exporting countries like Saudi Arabia develop and increase internal consumption, they will have significantly less oil available for export, creating severe scarcity for oil-importing nations.
“just a bit of credit to our former colleague, Jeffrey Brown and his land export philosophy or theory way back, gosh, 2006, 2007. I mean, he was pounding the table about precisely what you just described. And Pedro helped you with way back then, and only a few people were paying attention. And his point was, gee, as exporting countries like Saudi Arabia for instance, become developed countries, they're not going to have nearly as much oil to export because they're going to use a lot more of it internally.”
Renewable energy investment is currently in a bubble phase similar to early shale (focused on growth multiples and capital appreciation rather than profitability and returns), and will face a 'day of reckoning' when investors demand returns rather than growth, collapsing valuations and halting deployment.
“there's a parable that we need to remember, and that is shale and renewables. I mean, they couldn't be more different in some ways. But if we go back 10 or 13 years and look at shale, it was all about growth. Investors were piling into shale because there were huge multiples and they could make a lot of money on the stock, and they didn't care so much about whether these companies were profitable until they did, and then they all went away from the shales. Well, renewables is right there right now.”
An individual human can train themselves through meditation, behavioral change, and intentional practice to perceive the world as abundant even in conditions of physical scarcity, which Nate characterizes as a 'Buddhist economics within a declining capitalist system.'
“as an individual human, you can adopt, train yourself, meditate, change your behaviors so that you personally perceive the world in a way of abundance, even if there is physical scarcity generally.”
The Permian Basin has at least a decade of potential growth remaining, but capital markets and investor preferences are constraining investment; major oil operators (ExxonMobil, Chevron, Occidental) are under investor pressure to return capital rather than fund exploration and development.
“The Permian is a monster. There's two cases here. There's the geological case, which is sort of the upside, which is to say that there very likely could be, let's just be conservative and say, let's say there's at least a decade of plenty of more oil in the Permian. That's the good news. The bad news is, well, yeah, but where's the money?”
The assumption that China benefits from high oil prices is 'misinformed' because China's strategy is to dump products on the market when prices are high to lower them, making China's interests aligned with oil-consuming nations rather than oil-producing nations.
“the assumption that China would do really well from high oil prices, I think is misinformed. China is a big consumer and China, their strategy for years has been to just dump product out on the market when prices get high to lower the prices.”
Franklin Roosevelt met with the King of Saudi Arabia on an aircraft carrier in the Suez Canal in 1945 to establish a security agreement where the United States would guarantee Saudi Arabia's sovereignty in exchange for guaranteed future oil supplies.
“President Roosevelt on his way back to the US from Yalta made a stop on an aircraft carrier in the Suez Canal to meet with the king of Saudi Arabia to create a security agreement, whereby the United States would guarantee the security of Saudi Arabia. Now, this was 1945, the state of Saudi Arabia was only 12 or 13 years old at this time.”
Oil price in an environment of abundance moves toward the marginal (lowest-cost) producer, but in an environment of scarcity, price moves toward the maximum level that consumers can bear; current oil prices are approximately $20 above marginal cost, reflecting the shift from abundance to relative scarcity.
“when there's optimism about abundance, prices tend to move in the direction of the most efficient operators with the lowest variable cost... That's not the world that we're in anymore. Now we're in a world of relative scarcity. And where does price go in that environment? It goes to the very highest level that consumers can bear.”
OPEC and OPEC+ have systematically removed approximately 4 million barrels a day of crude oil and other products from the market over the last 12-13 months, which represents enforced scarcity created by geopolitical and economic choices rather than geological depletion.
“OPEC and its friends and neighbors called OPEC plus, that mostly includes Russia and a few others, have systematically removed pretty nearly 4 million barrels a day of crude oil, and a few other products from the market over the last 12 or 13 months.”
Saudi Arabia and Russia together account for 42% of world oil exports, and both have significant reasons to reduce confidence in US partnership, creating a geopolitical concentration risk where supply disruptions could severely impact global oil availability.
“And between the two of them, it's 42% of world oil exports between those two countries.”
President George W. Bush's invasions of Iraq and Afghanistan fundamentally altered the regional balance of power in the Middle East by empowering Iran, undermining Saudi Arabia's security position, and breaking the 60-year US-Saudi security compact established by Franklin Roosevelt.
“by not only invading but occupying Iraq and Afghanistan, the younger Bush thoroughly screwed things up, completely changed the balance of power. Gave huge power to Iran.”
Career decisions should prioritize personal bliss, creativity, satisfaction, and empathy over financial security or STEM-field prestige; young people should study philosophy, religion, and arts alongside technical skills to develop emotional maturity and life satisfaction.
“I would look beyond the emphasis, the mainstream emphasis of science, technology, engineering and mathematics... pick a career that gives you bliss and ignore all the people that tell you, 'Well, how are you going to make any money doing that?'”
Young people (ages 17-25) should not despair or take geopolitical/economic collapse personally, as the human system evolved to 'want more and take more,' creating inevitable consequences that are impersonal rather than intentionally targeted at younger generations.
“I would try not to despair, try not to see myself and my generation as a target... it's absolutely true that your generation is going to have to bear an awful lot more of the pain of what we're doing right now... That's a fact. I can't make that go away, but I don't think anybody planned this to cause you or your generation pain.”
All meaningful growth in global oil production over the last 13 years since the 2008 financial crisis has come from North American sources—specifically US shale and Canadian tar sands—while the rest of the world's conventional oil production has remained essentially flat or declined.
“Most, or all, of the growth in oil production in the last 13 years since the end of the great financial crisis, was the US shale and tar sands. Is that correct? Yeah, pretty much. That's it.”
Most US shale basins (Eagle Ford, Bakken, Niobrara) are in permanent decline except the Permian, which represents exceptional geological fortune rather than a consequence of superior technology or management.
“a lot of the shale plays in the United States are in permanent decline now except for the Permian, which is a monster and keeps increasing. And some people say there may be decades more growth in the Permian... The Permian is a monster. Saudi Arabia is a monster. This is just the luck of the draw I suppose.”
The Strategic Petroleum Reserve was created in 1975 in direct response to the 1973-1974 Arab oil embargo, with the goal of preventing gasoline lines and supply disruptions by maintaining approximately 700 million barrels in underground salt caverns, primarily in Texas and Louisiana.
“The Strategic Petroleum Reserve came into existence in direct response to the first oil shock in late 1973-1974. This is what's commonly known as the Arab oil embargo... In 1975, the Congress passed the law that said, 'Okay. We're going to do two things. We're going to create a national petroleum reserve.'”
Oil source rocks in North America were primarily deposited during the Jurassic period (when the Atlantic Ocean was open) and the Cretaceous, when stratified ocean conditions favorable to organic accumulation existed; these conditions are 'terrible for anything other than algae to live' but excellent for creating the organic-rich rocks that generate oil.
“most of the oil or the source rocks that have generated the oil today in North America, most of those were laid down during the Jurassic, which was the period of dinosaurs, if you will. And by then the Atlantic Ocean had opened up and a lot of the source rocks were laid down.”
An alternative oil-backed currency from BRICS is likely to emerge, but much more slowly than some proponents suggest, due to the vast amount of US dollar-denominated debt globally and China's limited ability to substitute for US financial capacity.
“My sense is that it is happening, it will happen. I think it's going to happen a lot slower than some of the people that are making a lot of noise about it... many of those reasons have to do with just how much US debt is out there in the world, versus how much debt can China, for instance, muster.”
The Biden administration began releasing oil from the Strategic Petroleum Reserve in late 2021 to reduce oil prices and prevent pain at the pump, which Berman characterizes as 'an absolutely terrible idea.'
“Biden at the time, said, 'Okay, we're going to start releasing oil from the Strategic Petroleum Reserve so that we don't feel the pain so much.' Now, just between you and me and everybody who's listening, I think that was an absolutely terrible idea.”
A return to the standard of living of the 1960s-1980s (lower material consumption than today) would not constitute a collapse of 'life as we know it,' but rather an adjustment to a world where people learned to be satisfied with less, and life could still be 'pretty good' without abundance.
“We're not talking about life as we know it ending. We're talking about going back to a standard of living that you and I grew up in back in the '60s, '70s, and '80s, which was a lot lower than it is today. But as I remember, I didn't want for too much. I mean, life was pretty good.”
Most global authorities (World Economic Outlook, International Energy Agency, Energy Information Agency) either cannot or will not state that energy and oil availability will decline, instead using euphemisms like 'peak demand' and 'net-zero' narratives that embed decline in a different story for political or institutional reasons.
“Even if they believed it, could they really say there's going to be less and less energy and oil available? Or do they have to, for political status, glass ceiling reasons, somehow obfuscate the story with peak demand or net-zero narratives that embed this decline in a different sort of story?”
Things are rarely as bad as they seem in the moment, and even when they appear catastrophic, all of the worst possible outcomes happening simultaneously is statistically improbable; historical precedent shows humans adjust to crises through adaptation rather than collapse.
“things are rarely as bad as they seem, or at the very least, when they seem really bad, that means that everything bad that could happen has to happen simultaneously and in an aggregate way. Now, that doesn't mean the bad things and terrible things don't happen because occasionally they do, but it's very rare that all of the horrible things that we can imagine might happen will all happen at the same time.”
The United States is currently producing approximately 13 million barrels of crude oil and condensate, consuming approximately 20 million barrels of petroleum products, and is therefore still a net importer despite being one of the top three producing nations.
“we're consuming 20 million barrels and producing 18 all in or something like that right now... Well, 20 million barrels of products, we're producing something pretty close to 13 million barrels of crude oil and condensate.”
There are 'responses' not 'solutions' to the energy predicament, meaning we can adapt and adjust but cannot technologically transcend the constraints of declining energy availability.
“There are responses, not solutions. But the reason I think people like that, and I get similar response in my presentations, believe that is because we've just gone through 50 years of lower and lower interest rates”
Blaming specific individuals (e.g., oil company CEOs) for systemic problems accomplishes nothing materially—it may provide emotional catharsis but does not help solve the problem or improve planetary outcomes.
“Blaming accomplishes absolutely nothing. It may make you feel a little bit better for a moment, but let's just say that the CEOs of five oil companies are in fact solely responsible for everything that's happening to our planet. Put them in jail, boil them in oil, do whatever you want. Did that make you feel better? Maybe, maybe not. Did it help the planet? Not a bit.”
Lower material throughput and energy consumption is inevitable given geology, investment constraints, and price limits to demand, but could be reframed as a transition to lower material throughput that could happen much sooner than expected, over the coming decades for both the US and the world.
“that lower material throughput is an inevitable reality that could happen much sooner than we think, but it's coming in the coming decades for the United States and for the world related to energy.”
Most policymakers, climate scientists, and renewable energy advocates genuinely believe net-zero and renewable solutions will work because 50 years of declining interest rates, abundant credit, and growing oil supplies have created emotional expectations that scarcity will always be solved through growth and technology.
“the most people, they really believe this stuff. I mean, whether they're policymakers or whether they're climate scientists... I have to say... the reason I think people like that... believe that is because we've just gone through 50 years of lower and lower interest rates, ubiquitous available of credit, and growing oil supplies... all of our visions of the future are supported by our emotional memory of what the last 50 years were.”
With $33 trillion in US debt and interest rates rising, the US will spend over $1 trillion annually on debt service, leaving no path out other than stagflation (high inflation alongside economic stagnation).
“With $33 trillion in debt and interest rates going up where we're going to have to spend over a trillion dollars on debt, I don't see a way out of this other than some sort of stagflation.”
Interest rates have had their largest six-month increase in history, the 10-year Treasury note is approaching 5%, and average national mortgage rates are approaching 8%, creating a second demand-destroying mechanism alongside high oil prices that constrains household consumption.
“And interest rates have just had their largest six month increase in history. The 10-year note is approaching a 5%. And that also has a ripple effect on demand. Today, the average national mortgage rate is approaching 8%.”
Oil price spikes do not kill demand because people 'are sick of oil and want to buy a Tesla' (a net-zero narrative), but because people literally cannot afford to buy the energy they need, forcing involuntary demand destruction through poverty.
“Peak demand. Well, for a lot of reasons, yeah. It's not peak demand because people are sick of oil and they want to buy a Tesla. It's because they just can't afford what they need.”
New wells in the Permian Basin are approximately 15-20% less productive than wells drilled in 2017-2018, but this decline is economically manageable because breakeven costs are in the mid-to-upper $40 range per barrel, allowing companies to earn $30 profit per barrel at current $80-90 oil prices.
“a new well in the Permian is maybe 15 or 20% not as good as one back in 2017, 2018. So that sounds pretty bad. But then you start looking at the economics of it and say, holy cow, I mean you can make a ton of money on a well that's only 15% less good than something in 2018.”
President Trump's primary goal in cultivating the Saudi relationship was not energy security but rather gaining access to Crown Prince Mohammad bin Salman's Vision 2030 business opportunities (sports leagues, golf events, hotels), demonstrating the same energy blindness as his predecessors.
“What he was doing there was he wanted to woo the crown Prince Mohammad bin Salman, who at his vision 2030 was planning all kinds of sports events. Okay. And which now he's buying golf leagues and soccer leagues. And Trump wanted in on that game. He's a hotel kind of guy.”
The United States has thoroughly bungled foreign policy regarding energy since the administration of the first President Bush (with the exception of Clinton), particularly by failing to understand that energy security is the central pillar of American foreign policy as established by Franklin Roosevelt's 1945 agreement with Saudi Arabia.
“the United States has so thoroughly bungled foreign policy since... Well, I'll give Clinton a break, although he kind of goes both ways. But really since the first President Bush.”
Vladimir Putin has superior understanding of energy and resource economics compared to recent American presidents, including a degree in resource economics and a thesis focused on how the Soviet Union collapsed due to failure to understand energy infrastructure requirements.
“Vladimir Putin, as we have discussed, I think on this channel once before, I mean this guy has, I don't know if it's a PhD, it's different in Russia, but he has a degree in resource economics. He wrote his dissertation or his thesis or whatever you want to call it, on basically how the Soviet Union fell for failure to understand its energy infrastructure requirements.”
Both the Biden drawdown of the Strategic Petroleum Reserve and the 2016 lifting of the crude oil export ban were mistakes, but the export ban lifting is the worse strategic error, as it represents permanent loss of a natural resource while the SPR drawdown could theoretically be reversed.
“we'd already given up on banning crude oil export in 2016, and that was an even worse idea in my opinion... If you're trying to save yourself for a rainy day, you don't do either of them.”
If forced to choose between two interventions with no personal consequences, Berman would require every citizen to listen to The Great Simplification podcasts or undergo psychological therapy, as both aim at systems thinking and emotional healing, which are necessary foundations for navigating the predicament.
“I'm going to give you two choices. You have to do one or the other. The first is you need to listen to every single one of The Great Simplification podcasts, and if you don't like that option, then you have to put in an equal number of hours with a psychological therapist.”
The appropriate strategic posture for the SPR is to keep it topped off at maximum capacity (700 million barrels) as an emergency reserve for geopolitical shocks, rather than drawing it down to address current market prices.
“a savvy practice would be to keep those tapped off all the time, topped off in case there is an international emergency or whatever.”
Biden administration released approximately 250 million barrels from the Strategic Petroleum Reserve (roughly 40% drawdown from 700 million to 360 million) to suppress oil prices, while simultaneously the US has exported 6.5 billion barrels of crude oil since the 2016 ban was lifted.
“The SPR, the Strategic Petroleum Reserve got drawn down from something like 700,000,000 barrels to where it is today, which is about 360, 000,000 and that's 40%. That's a lot.”
Some climate activists and policymakers privately acknowledge that climate solutions won't work as promised but feel compelled to keep promoting them for political or motivational reasons; most, however, genuinely believe in renewable and net-zero pathways despite insufficient evidence.
“There are a few people out there, political leaders and climate, and ecological activists, and opinion influencers that understand that, 'Yeah, I mean, all this net-zero stuff is probably not going to work so well. And renewables are probably not going to work the way some people hope. But we got to keep telling people that.'”
Berman cares most about life itself—family, relationships with people and animals, the beauty of existence together—rather than economic or technological achievement, and finds that ducks, grandchildren, and his wife's presence provide daily joy and meaning.
“I care about life, not just my own, although I am selfish. I'm here being with my grandchildren, my wife's here with me. I care about my family. My dog's here with me. I love her... We all are here together in this life, and it's a mess in a lot of ways, but it is a beautiful thing.”
Berman received significant pushback when arguing that climate solutions are unrealistic and that the broader human predicament (including economics, interest rates, treasury bonds, ecology, and geopolitics) must be considered alongside narrow climate focus.
“I just gave a couple of talks a few weeks ago, where I pissed more people off than I think I have in 10 or 15 years back when I was given the shale talks... I was getting more angry reactions than I'd gotten in years, saying that all these climate solutions were simply not going to work. That they needed to understand the human predicament and that their carbon focus, their climate change focus was a narrow view.”
US oil production has a 36% annual decline rate across all legacy wells (aggregated across the five to six largest producing areas including Texas, Louisiana, Oklahoma, North Dakota, Gulf of Mexico, and New Mexico, which account for 85% of US production), meaning without continued drilling, production would fall by one-third each year.
“When I did the decline on that, I came up with 36%, and that's a production weighted decline. So that's not a simple average of all those states.”
Other countries have Strategic Petroleum Reserves similar to the US, with the US maintaining the largest known reserve, though China's reserve size is unclear and likely substantial given China's status as the world's largest oil importer.
“The United States is by far the largest in the world, at least as far as we know. We don't really know what China has. They're not very transparent and their storage or anything like that, but my guess is that China probably has a pretty respectable one.”
Berman's proposed next podcast topic is 'Getting Honest about the Human Predicament,' focusing on distinguishing between what is realistically feasible versus what is wishful thinking regarding proposed solutions like renewables, net-zero, and nuclear, examining each idea in depth.
“I'd like to pursue the topic that I told you got me in a little bit of contentious water just recently, which is the title of the talk I gave was Getting Honest about the Human Predicament... let's talk about what actually is realistic and feasible versus what is just basically fooling ourselves about where we're going with the ideas, the potential solutions.”