Peak Oil News: 10/01/2004 - 11/01/2004

Sunday, October 31, 2004

Future of oil supply is murky

The peak-oil topic is controversial within the small community of oil forecasters, who disagree on when it will come, but what may be most remarkable is how little attention the general public pays to whether ''peak oil'' is an issue at all.

It is. The dinosaurs aren't making any more of it. Petroleum geologists say oil was made in periods 65 million to 500 million years ago as sediments covered and cooked organic matter deep within the earth, and the same goes for natural gas.

When the Oil Age dawned commercially in the early part of the 20th century, America pumped most of the petroleum being pumped around the globe -- and used most of it, too.

America's peak of production was in 1970, and it's been downhill ever since. Consumption, on the other hand, has swelled. Today, using data from the U.S. Energy Information Administration, about 7.7 million barrels of crude are yielded domestically per day while about 20.4 million barrels are consumed.

Friday, October 29, 2004

Why you may soon pay $10 a gallon for gasoline

The Journal News

Those who believe the peak is coming soon see a rising threat to the existence of the human race.

Matthew Simmons, who runs a Houston-based investment bank specializing in energy, says he believes that the world needs to curtail its oil production for several years while trying to get a better handle on what's left of the supply.

"It's very complicated, but the idea that it's not around the corner is really far-fetched in my opinion and it (peak production) may have already passed," says Simmons, who is writing a book about the depletion of Saudi Arabia's oil reservoirs.

Simmons says many of the world's largest oil fields, particularly those outside the former Soviet Union and the 11 nations that make up the Organization of the Petroleum Exporting Countries, no longer produce the volume they once did.

Though the yield from Russia and other parts of the former Soviet Union has increased in recent years, that growth has come because producers have squeezed old fields, not because they've discovered new fields, he says.

"It's really hard to find an area outside of OPEC that you could make you put your hand on your heart and say, 'I see a lot of growth coming in the next five years,' " he says. "Maybe we'll find a new basin somewhere, but we haven't done it in 30 years."

Simmons looks around the world and sees no other reasons for encouragement.

He says China has two fields, Daqing and Shengli, that account for 50 percent of that country's production. He says internal reports estimate production in these fields will drop by half in the next five years.

The bulk of Mexico's production comes from Cantarell Field, where it took a $10.5 billion nitrogen injection project to increase production.

The North Sea — between Great Britain and the European mainland — and Iran are other areas in decline, he says. Iraq's fields are being surveyed, but the nation's oil infrastructure was badly damaged by Saddam Hussein's neglect and war.

"There is a lot of potential for negative supply surprises," Simmons says. "There is very little potential for positive supply surprises."

It's a problem the world has been slow to recognize, and time is running out, he says.

"How do you solve it?" he says. "I don't know, but if you don't solve it, it's a show stopper. If you come back and think about the role of what modern energy plays in society, it's water, it's food, it's transportation. You really get into talking about much more than just motor gasoline prices."

Wednesday, October 27, 2004

Analyst warns of Saudi oil dropoff

Saudi Arabia, the world's safety valve for oil, may soon lose its ability to make up production shortfalls from other countries.
That's the warning delivered in Denver on Monday by energy analyst Matthew Simmons.

Saudi Arabia's presumed ability to bring more oil to market is often mentioned as the antidote to record high prices for oil and tight supplies.

But Simmons said prolific Saudi oil fields show signs of peaking and then gradually declining. Simmons, chief executive of Houston-based energy investment banker Simmons & Co. International, spoke to the Desk & Derrick Club of Denver, a petroleum trade association.

"They're taking the last of the easy oil out," Simmons said of Saudi oil producers. "They've had very little success in new exploration. Their sweet spots are probably very nearly depleted."

Tuesday, October 26, 2004

The Ishmael Community: On Peak Oil

The Ishmael Community: Questions and Answers

I recently read about Peak Oil. The theory states that we will soon (within ten years) run out of cheap oil, which is the basic resource for everything in our modern society and most importantly, our modern agriculture. The result of the oil-induced collapse will be (literally) billions of deaths. What is your opinion on this? Is it too late to save the world now?
...and the response:
As I understand the term, saving the world means preserving it as a viable home to life, including human life. At the moment, the greatest threat to this goal is the continued uncontrolled growth of the human population. I personally doubt that even our present population is sustainable, since it is by now well known that, because of our impact on the earth, we are in a period of mass extinctions. To sustain our six billion, so much biomass is being taken from the species around us that we are seriously attacking the diversity of the living community that makes the earth a viable home to life, including our own. Thus you have to see that maintaining and increasing our population of six billion is not at all equivalent to "saving the world." If the coming oil crisis results in a global famine and the death of billions (which is not unthinkable, though I personally am reluctant to make predictions about the future), then this would not work AGAINST saving the world, it would work FOR it. The period of mass extinctions would come to an immediate end. Civilization would be devastated, of course, but human life would not disappear. The alternative of continued human growth to an anticipated twelve billion would, I feel sure, produce a much more dire future and a general and irreversible ecological collapse that would doom all or most large terrestrial organisms like mammals, including humans.

From The American Conservative Magazine

Kerry’s the One

By Scott McConnell

November 8, 2004 issue

There is little in John Kerry’s persona or platform that appeals to conservatives. The flip-flopper charge—the centerpiece of the Republican campaign against Kerry—seems overdone, as Kerry’s contrasting votes are the sort of baggage any senator of long service is likely to pick up. (Bob Dole could tell you all about it.) But Kerry is plainly a conventional liberal and no candidate for a future edition of Profiles in Courage. In my view, he will always deserve censure for his vote in favor of the Iraq War in 2002.

But this election is not about John Kerry. If he were to win, his dearth of charisma would likely ensure him a single term. He would face challenges from within his own party and a thwarting of his most expensive initiatives by a Republican Congress. Much of his presidency would be absorbed by trying to clean up the mess left to him in Iraq. He would be constrained by the swollen deficits and a ripe target for the next Republican nominee.

It is, instead, an election about the presidency of George W. Bush. To the surprise of virtually everyone, Bush has turned into an important president, and in many ways the most radical America has had since the 19th century. Because he is the leader of America’s conservative party, he has become the Left’s perfect foil—its dream candidate. The libertarian writer Lew Rockwell has mischievously noted parallels between Bush and Russia’s last tsar, Nicholas II: both gained office as a result of family connections, both initiated an unnecessary war that shattered their countries’ budgets. Lenin needed the calamitous reign of Nicholas II to create an opening for the Bolsheviks.

Bush has behaved like a caricature of what a right-wing president is supposed to be, and his continuation in office will discredit any sort of conservatism for generations. The launching of an invasion against a country that posed no threat to the U.S., the doling out of war profits and concessions to politically favored corporations, the financing of the war by ballooning the deficit to be passed on to the nation’s children, the ceaseless drive to cut taxes for those outside the middle class and working poor: it is as if Bush sought to resurrect every false 1960s-era left-wing cliché about predatory imperialism and turn it into administration policy. Add to this his nation-breaking immigration proposal—Bush has laid out a mad scheme to import immigrants to fill any job where the wage is so low that an American can’t be found to do it—and you have a presidency that combines imperialist Right and open-borders Left in a uniquely noxious cocktail.

During the campaign, few have paid attention to how much the Bush presidency has degraded the image of the United States in the world. Of course there has always been “anti-Americanism.” After the Second World War many European intellectuals argued for a “Third Way” between American-style capitalism and Soviet communism, and a generation later Europe’s radicals embraced every ragged “anti-imperialist” cause that came along. In South America, defiance of “the Yanqui” always draws a crowd. But Bush has somehow managed to take all these sentiments and turbo-charge them. In Europe and indeed all over the world, he has made the United States despised by people who used to be its friends, by businessmen and the middle classes, by moderate and sensible liberals. Never before have democratic foreign governments needed to demonstrate disdain for Washington to their own electorates in order to survive in office. The poll numbers are shocking. In countries like Norway, Germany, France, and Spain, Bush is liked by about seven percent of the populace. In Egypt, recipient of huge piles of American aid in the past two decades, some 98 percent have an unfavorable view of the United States. It’s the same throughout the Middle East.

Bush has accomplished this by giving the U.S. a novel foreign-policy doctrine under which it arrogates to itself the right to invade any country it wants if it feels threatened. It is an American version of the Brezhnev Doctrine, but the latter was at least confined to Eastern Europe. If the analogy seems extreme, what is an appropriate comparison when a country manufactures falsehoods about a foreign government, disseminates them widely, and invades the country on the basis of those falsehoods? It is not an action that any American president has ever taken before. It is not something that “good” countries do. It is the main reason that people all over the world who used to consider the United States a reliable and necessary bulwark of world stability now see us as a menace to their own peace and security.

These sentiments mean that as long as Bush is president, we have no real allies in the world, no friends to help us dig out from the Iraq quagmire. More tragically, they mean that if terrorists succeed in striking at the United States in another 9/11-type attack, many in the world will not only think of the American victims but also of the thousands and thousands of Iraqi civilians killed and maimed by American armed forces. The hatred Bush has generated has helped immeasurably those trying to recruit anti-American terrorists—indeed his policies are the gift to terrorism that keeps on giving, as the sons and brothers of slain Iraqis think how they may eventually take their own revenge. Only the seriously deluded could fail to see that a policy so central to America’s survival as a free country as getting hold of loose nuclear materials and controlling nuclear proliferation requires the willingness of foreign countries to provide full, 100 percent co-operation. Making yourself into the world’s most hated country is not an obvious way to secure that help.

I’ve heard people who have known George W. Bush for decades and served prominently in his father’s administration say that he could not possibly have conceived of the doctrine of pre-emptive war by himself, that he was essentially taken for a ride by people with a pre-existing agenda to overturn Saddam Hussein. Bush’s public performances plainly show him to be a man who has never read or thought much about foreign policy. So the inevitable questions are: who makes the key foreign-policy decisions in the Bush presidency, who controls the information flow to the president, how are various options are presented?

The record, from published administration memoirs and in-depth reporting, is one of an administration with a very small group of six or eight real decision-makers, who were set on war from the beginning and who took great pains to shut out arguments from professionals in the CIA and State Department and the U.S. armed forces that contradicted their rosy scenarios about easy victory. Much has been written about the neoconservative hand guiding the Bush presidency—and it is peculiar that one who was fired from the National Security Council in the Reagan administration for suspicion of passing classified material to the Israeli embassy and another who has written position papers for an Israeli Likud Party leader have become key players in the making of American foreign policy.

But neoconservatism now encompasses much more than Israel-obsessed intellectuals and policy insiders. The Bush foreign policy also surfs on deep currents within the Christian Right, some of which see unqualified support of Israel as part of a godly plan to bring about Armageddon and the future kingdom of Christ. These two strands of Jewish and Christian extremism build on one another in the Bush presidency—and President Bush has given not the slightest indication he would restrain either in a second term. With Colin Powell’s departure from the State Department looming, Bush is more than ever the “neoconian candidate.” The only way Americans will have a presidency in which neoconservatives and the Christian Armageddon set are not holding the reins of power is if Kerry is elected.

If Kerry wins, this magazine will be in opposition from Inauguration Day forward. But the most important battles will take place within the Republican Party and the conservative movement. A Bush defeat will ignite a huge soul-searching within the rank-and-file of Republicandom: a quest to find out how and where the Bush presidency went wrong. And it is then that more traditional conservatives will have an audience to argue for a conservatism informed by the lessons of history, based in prudence and a sense of continuity with the American past—and to make that case without a powerful White House pulling in the opposite direction.

George W. Bush has come to embody a politics that is antithetical to almost any kind of thoughtful conservatism. His international policies have been based on the hopelessly naïve belief that foreign peoples are eager to be liberated by American armies—a notion more grounded in Leon Trotsky’s concept of global revolution than any sort of conservative statecraft. His immigration policies—temporarily put on hold while he runs for re-election—are just as extreme. A re-elected President Bush would be committed to bringing in millions of low-wage immigrants to do jobs Americans “won’t do.” This election is all about George W. Bush, and those issues are enough to render him unworthy of any conservative support.

Pump Dreams

The New Yorker

In the predawn hours of October 6, 1973, on Yom Kippur, Egyptian and Syrian forces launched a surprise attack on Israeli positions in the Gaza Strip and the Golan Heights. Two weeks later, after the Pentagon had started airlifting matériel to Israel, to counter Soviet shipments to Egypt and Syria, King Faisal, of Saudi Arabia, cut off his country’s oil exports to the United States. Other members of the Organization of the Petroleum Exporting Countries, which had been founded in Baghdad thirteen years earlier, followed Faisal’s lead. Almost overnight, the price of crude oil doubled. Gasoline prices rose sharply, shortages developed, and a new phrase entered the American lexicon: “gas lines.” On November 7th, President Nixon, already under pressure from Watergate, addressed an anxious country, saying, “Let us set as our national goal, in the spirit of Apollo, with the determination of the Manhattan Project, that by the end of this decade we will have developed the potential to meet our own energy needs without depending on any foreign energy source.”

More than thirty years later, Nixon, Leonid Brezhnev, Anwar Sadat, Hafez al-Assad, and Golda Meir are all dead—and so is King Faisal, who was assassinated by his nephew in 1975—but energy independence has returned as a major issue. The price of crude recently touched fifty dollars a barrel, drivers in many parts of the country are paying more than two dollars a gallon for gasoline, and both Presidential candidates have been sounding uncannily like Nixon. “I want an America that relies on its own ingenuity and innovation—not on the Saudi royal family,” Senator John Kerry said in his speech at the Democratic Convention, in July. “And our energy plan for a stronger America will invest in new technologies and alternative fuels and the cars of the future—so that no young American in uniform will ever be held hostage to our dependence on oil from the Middle East.” President Bush has countered by pushing his own energy agenda, which includes a controversial proposal to begin drilling for oil in the Arctic National Wildlife Refuge, an idea that Congress has so far rejected. “We will make our country less dependent on foreign sources of energy,” Bush told the Republican Convention.

Although the Democratic and Republican energy plans differ widely, their underlying rationale is the same. In 2003, the United States consumed some twenty million barrels of oil a day, of which slightly more than half was imported from abroad, much of it from the Persian Gulf. By 2020, according to the Department of Energy, domestic oil producers will be meeting less than a third of United States needs, and the Gulf countries will be supplying up to two-thirds of the world’s oil. “This imbalance, if allowed to continue, will inevitably undermine our economy, our standard of living, and our national security,” the Bush Administration’s National Energy Policy Development Group warned in a May, 2001, report. “But it is not beyond our power to correct. America leads the world in scientific achievement, technical skill, and entrepreneurial drive. Within our country are abundant natural resources, unrivaled technology, and unlimited human creativity. With forward-looking leadership and sensible policies, we can meet our future energy demands and promote energy conservation, and do so in environmentally responsible ways that set a standard for the world.”

When energy independence is presented in this way, it is hard to object—who would advocate energy dependence?—but optimism and an appeal to American patriotism don’t add up to a coherent policy. Moving beyond rhetoric and actually trying to make America less reliant on foreign oil involves confronting powerful commercial interests, solving difficult technological problems, and convincing the American public that cheap fuel is not a birthright.

The two hundred and ninety million people who live in the United States make up just five per cent of the world’s population, but they consume a quarter of the world’s oil supply. For much of the twentieth century, the United States was the world’s largest oil producer, and its profligacy wasn’t a pressing problem. Today, however, we are only the third-largest producer, behind Saudi Arabia and Russia. In terms of proven reserves—oil deposits that are known to exist and are believed to be accessible at reasonable cost—we have slipped to tenth place in the international rankings, as reservoirs in Texas, Louisiana, and Oklahoma have started to dry up.

According to the oil company BP’s “Statistical Review of World Energy,” a recognized authority on these matters, at the end of 2003 the United States possessed thirty-one billion barrels of proven reserves, more than China and less than Nigeria. These figures have a straightforward implication: if the United States were forced to rely on its own resources, it would run out of oil in four years and three months. This calculation takes into account the Strategic Petroleum Reserve, which President Ford created in 1975, and which is stored at a number of sites in Texas and Louisiana. At full capacity, the reserve contains about seven hundred million barrels of oil—enough to keep the economy going for a few months during an emergency, such as the outbreak of a war that would cut the supply lines to the Middle East, but not nearly enough to keep gasoline prices low for a more extended period, which is what some politicians have suggested. “The purpose of the Strategic Petroleum Reserve, from its inception, was never to bring down the price of oil,” Larry Goldstein, the president of the Petroleum Industry Research Foundation, told me. “It was to minimize the economic dislocation during supply disruptions, unforeseen shocks to the market.”

The Bush Administration, which has proposed expanded tax breaks for drilling and exploration, apparently believes that there is plenty of oil yet to be discovered beneath the North American continent, a view not shared by the oil industry, which has cut back sharply on domestic drilling. Not so long ago, the deep waters of the Gulf of Mexico were considered a fertile exploration area. Lately, after much costly and frustrating drilling, it has proved something of a disappointment. Lee Raymond, the chairman and chief executive of ExxonMobil, was recently moved to comment that the company would have done better financially if it had given up after sinking a single well there.

The Arctic National Wildlife Refuge, on Alaska’s North Slope, is the new hope. The Prudhoe Bay oil field, one of the world’s biggest reservoirs, is just sixty miles west of the refuge. Surveys carried out by the U.S. Geological Survey suggest that anwr may contain about ten billion barrels of recoverable oil. If this estimate turns out to be reliable, and if exploration starts next year, in 2025 anwr could be generating about a million barrels of oil a day. This is a lot of fuel, but it dwindles next to our energy requirements. By 2025, according to the Department of Energy, Americans will be consuming almost thirty million barrels a day. With luck, an anwr oil field operating at full capacity could satisfy perhaps three or four per cent of that total, meaning that most of the oil we use would still have to be imported.

Senator Kerry’s ambitious energy plan, which doesn’t include drilling in the Arctic preserve, comes in two parts. The less publicized piece involves promoting natural gas and coal, two hydrocarbons that already meet about half of America’s energy needs, mostly in the form of fuel for power stations. Kerry says that he will build a gas pipeline from Alaska, where there are large deposits of natural gas, and invest ten billion dollars in modernizing antiquated coal plants.

These ideas have merit—global stocks of natural gas and coal are huge—but they don’t represent a panacea. As natural gas has come to be used more widely in the United States, we have started to import large quantities of it from foreign producers. America possesses just three per cent of the world’s known reserves; Iran, Russia, and Qatar together possess more than fifty per cent. There can be no guarantee that a future government in Tehran, Moscow, or Doha won’t seek to exercise its market power in the same way that opec did in the nineteen-seventies.

Coal is less subject to political uncertainty, and Nazi Germany demonstrated that it can fairly easily be converted to gasoline. It is still abundant in the United States and in many other countries that are short of oil, such as China and India and some European countries. Modern coal-fired power plants don’t emit nearly as much nitrogen oxide and sulfur dioxide, the two main sources of acid rain, as older plants do. However, burning coal inevitably generates carbon dioxide, the gas primarily responsible for global warming, which even the Bush Administration has now admitted is a genuine phenomenon. It is feasible to sequester the carbon dioxide, but scientists are divided about whether it will prove possible to store it someplace where it won’t get released into the atmosphere. Since 1996, Statoil, a Norwegian company, has been injecting about a million metric tons of carbon dioxide a year into an aquifer under the North Sea. “People like myself have a lot of confidence that this will work,” Bob Williams, a physicist at the Princeton Environmental Institute, told me. “But we can’t say it with certainty until we do a lot more experiments. Nobody is going to be convinced by one demonstration project in the North Sea. You don’t want CO2 to come up into your basement from an underground storage area.”

Many environmentalists see any attempt to prolong our dependence on hydrocarbons as dubious. The Apollo Alliance, an influential umbrella organization of Greens and trade unionists, is calling for the development of power derived from the sun, the oceans, and crops, which it says will enable the country to achieve energy independence within a generation. Senator Kerry has adopted some of the Apollo Alliance’s rhetoric, calling energy independence “the great project of our generation.” The second half of his plan, the conservation and alternative-energy part, includes a pledge to make sure that twenty per cent of America’s electricity comes from renewable energy sources by 2020. Since about ten per cent of the power supply already comes from alternative-energy plants—hydroelectric plants, mainly—this doesn’t sound like an overambitious target, and it hardly amounts to energy independence.

Yet, even getting to twenty per cent represents a big challenge. Power generated from waves, windmills, and solar panels is weak, intermittent, and expensive—at least twice the cost of electricity produced from coal or gas. When it is cold or dark, solar panels don’t produce energy; when it is calm, wind turbines don’t turn. To insure continuity of supply, renewable power plants have to budget for large amounts of overcapacity, a problem that isn’t going to disappear. And, although alternative energy is getting cheaper as technology improves, the same is true of energy generated from hydrocarbons. “He”—Kerry—“is asking for an awful lot without telling us how he’s going to get there and at what cost,” Robert Ebel, a veteran oil-industry executive who once worked for the C.I.A. and now heads the energy program at the Center for Strategic and International Studies, in Washington, said. “Where is the twenty per cent going to come from?”

There is another, more basic problem with Kerry’s proposals. Switching to renewable energy wouldn’t reduce oil imports much, because most power stations don’t run on oil, which is largely used for road and air transport. Developing a transport fuel that can compete with oil is an enormous challenge. For this reason, among others, many analysts regard the candidates’ endorsement of energy independence as a political diversion. “It makes absolutely no sense to talk about energy independence,” Ebel told me. “We cannot produce our way to energy independence, and we cannot use efficiency or conservation to achieve energy independence. It’s just not going to happen, at least in my lifetime.”

If the skeptics are right, what can be done? Some experts, such as Edward L. Morse, who worked in the State Department on energy issues during the Carter and Reagan Administrations, believe that new discoveries in Russia, Central Asia, and West Africa will eventually allow the United States to diversify its sources of petroleum. “The most recent giant field that was discovered was Kashagan, in Kazakhstan,” Morse told me. “That field probably has more oil in place than the total remaining known reserves of the United States. The exploitable resources in the former Soviet Union are probably on the same order of magnitude as those in Saudi Arabia and Iraq.”

Unfortunately, nobody knows for sure how much crude is buried in the Caspian region and Siberia, or how much it will cost to extract those reserves and transport them to world markets. Taking the planet as a whole, the rate at which oil is being discovered has slowed down since the nineteen-sixties, and some geologists believe that global production is about to start falling. Colin Campbell, a British geologist who used to work for major oil companies, has popularized this argument. “Understanding depletion is simple,” Campbell says on the Web site of the organization he founded, the Association for the Study of Peak Oil & Gas. “Think of an Irish pub. The glass starts full and ends empty. There are only so many more drinks to closing time. It’s the same with oil.”

The geological debate is difficult for an outsider to judge. All we know for sure is that proven reserves are concentrated in the Persian Gulf: Saudi Arabia (262.7 billion barrels), Iran (130.7 billion), Iraq (115 billion), the United Arab Emirates (97.8 billion), and Kuwait (96.5 billion). The only country in the Western Hemisphere that has reserves of comparable magnitude is Venezuela (78 billion barrels), which is also a member of opec and boasts a populist, left-leaning President, Hugo Chávez, who frequently rails against United States imperialism. opec oil, for all its geopolitical drawbacks, is cheap, easy to transport, and relatively clean if used efficiently.

One of the key strategic issues facing the United States is how to insure continued access to opec oil when other countries are also importing more fuel. During the past ten years, global demand for oil has risen by almost a fifth, with the greatest increases coming from India and China, which recently passed Japan to become the world’s second-largest consumer of crude oil.

The decision to invade Iraq represented one way to deal with the oil-dependency dilemma: direct American intervention. President Bush, a former Texas wildcatter, and Vice-President Cheney, the former chief executive of Halliburton, the world’s biggest oil-services company, both have an acute understanding of energy issues. In 1999, when Cheney was still at Halliburton, he gave a speech at London’s Institute of Petroleum in which he pointed out that by 2010 the world would probably need another fifty million barrels of oil a day. “So where is the oil going to come from?” Cheney asked. “While many regions of the world offer great oil opportunities, the Middle East, with two-thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies.”

As Vice-President, Cheney was put in charge of the National Energy Policy Development Group, which, in its May, 2001, report, pointed out that the Persian Gulf region would “remain vital to U.S. interests.” The Bush Administration hadn’t publicly raised the possibility of invading Iraq, but in August, 2002, seven months before the war started, Cheney warned that Saddam would be able to seize control of the world’s economic lifeline if he acquired weapons of mass destruction: “Armed with an arsenal of these weapons of terror, and seated atop ten per cent of the world’s oil reserves, Saddam Hussein could then be expected to seek domination of the entire Middle East, take control of a great portion of the world’s energy supplies, directly threaten America’s friends throughout the region, and subject the United States or any other nation to nuclear blackmail.”

Cheney has since been criticized for exaggerating the threat that Saddam represented, but the geostrategic thinking that underpinned the energy portions of his speech was not new. It dated back to January 23, 1980, when President Jimmy Carter declared, in his State of the Union address, “Let our position be absolutely clear: An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”

Prior to the Carter Doctrine, the United States had exercised its influence in the Middle East through friendly governments in Saudi Arabia and Iran: the so-called “twin pillars” of American policy. But in January, 1979, a popular revolt toppled the Shah, and the new regime in Tehran tilted toward Moscow. Then, in December, 1979, the Soviet Union invaded Afghanistan. Following Carter’s speech, the Pentagon embarked on a lengthy military buildup in the Gulf, beginning with the creation of a Rapid Deployment Joint Task Force, which could be dispatched to the Middle East on short notice. In 1983, President Reagan went a step further, establishing a U.S. Central Command, based in Tampa, and charging it with defending U.S. interests in East Africa, the Middle East, and Central Asia.

When Communism collapsed, the U.S. military didn’t withdraw from the Persian Gulf. After the Gulf War of 1991, it stationed its forces in Saudi Arabia, the Muslim holy land, and built up its presence in Qatar and Turkey. Saddam, after surviving one American-led invasion, eventually fell victim to Washington’s willingness to project its power militarily, a point that Michael T. Klare, a professor at Hampshire College, in Amherst, Massachusetts, stresses in his new book, “Blood and Oil.” “From the vantage of officers and enlisted personnel in the U.S. Central Command, the invasion of Iraq is only the latest in a series of military engagements in the Gulf proceeding from the Carter Doctrine,” Klare writes. “This history helps to explain why the very first military objective of Operation Iraqi Freedom was to secure control over the oil fields and refineries of southern Iraq.”

The policy of direct intervention hasn’t worked as planned. In April, 2003, just weeks after the invasion of Iraq, Vice-President Cheney predicted that by the end of the year Iraq would be able to raise its oil output as much as fifty per cent over prewar levels. Before the war, the Iraqi National Oil Company was pumping about two and a half million barrels a day. Now, with the help of money, personnel, and equipment provided by the American government, it is pumping about 1.8 million barrels a day—at least, on those days when insurgent attacks on pipelines and storage facilities don’t force a cut in production. Early hopes of a surge in foreign investment that would enable Iraq to double or triple production in the next few years have turned out to be fanciful. Western oil companies are understandably reluctant to invest in a country that seems to be slipping toward civil war. “Iraq has great potential, but it also has great problems,” Robert Ebel said. “I would give them perhaps four, or four and a half, million barrels of production a day by the end of the decade—certainly not the six million barrels the Iraqis are talking about.”

To energy traders, what is happening outside Iraq’s borders is at least as important as what is happening inside the country. The Bush Administration’s decision to take military action has destabilized the rest of the Middle East, especially Saudi Arabia, and this has severely rattled the oil market. “People who trade oil futures in New York and London read ten articles saying that the Saudi regime is going to collapse, then they bid up the price of oil,” Robert Mabro, the chairman of the Oxford Institute of Energy Studies and an internationally renowned expert on oil, told me last week. “The fears may be exaggerated, but they are having a big effect on the oil price.”

Contrary to popular belief, the opec cartel, led by Saudi Arabia, no longer controls the price of oil, and hasn’t done so since 1986, when the price collapsed. The price is determined by the forces of supply and demand, operating through the futures markets in New York and London, where oil is traded like any other commodity. During the past couple of years, opec’s eleven members have raised their daily production by almost three million barrels to meet rising demand, and they don’t have much spare capacity left. Futures traders believe that another interruption in supply could lead to a crisis in the market. This has led them to bid up the current price by about fifteen dollars a barrel since the start of the year, an increase that is sometimes referred to in the markets as a security premium. “The recent terrorist attacks in Saudi Arabia and the continuing attacks on oil infrastructure in Iraq are largely responsible for the extant security premium in crude-oil prices,” John Kilduff, an energy analyst at the brokerage firm Fimat USA, said in recent testimony before the Senate Committee on Energy and Natural Resources. “Historically, Saudi Arabia has been the stalwart in terms of being able to fill production gaps when they have occurred. The mere idea that the kingdom may be the source of a supply disruption has caused available crude to become even more valuable in the face of such an uncertainty.”

By invading Iraq, the Bush Administration has unwittingly helped to create what its National Energy Policy was designed to avoid: rising oil prices that threaten to derail the economic recovery. When the price of fuel goes up, it acts like a tax on the economy, reducing consumers’ purchasing power and raising firms’ costs. After the oil-price shocks of both 1973 and 1979, the economy went into a recession. So far this year, the economy has continued to grow, but the rate of expansion has fallen, a development that Alan Greenspan, the chairman of the Federal Reserve, has largely blamed on rising oil prices.

In light of what is happening in the oil market and in the Middle East, many analysts believe it is time to reassess the Carter Doctrine and its Bush-Cheney variant. “I think we are pretty much at the end of the line,” Jeffrey Sachs, the director of Columbia University’s Earth Institute, who also serves as a special adviser to Kofi Annan, the United Nations Secretary-General, told me. “Saudi Arabia is pretty rapidly destabilizing. Iraq I don’t think we are ever going to get under control this way. And our relationship with Iran is poor and deteriorating. The idea that we are going to be the dominant military power of the Persian Gulf is an extremely unrealistic way to manage our affairs. I don’t have an automatic solution. I just think that this one—where we keep building up the military commitment because it keeps failing—is a loser.” A less provocative United States policy stance would involve reducing the American military presence in the Gulf while retaining a veto over what happens there. (American disengagement, which Senator Kerry sometimes seems to advocate, is neither realistic nor desirable.) “The only sensible policy in the Middle East for a superpower is one of benign protection,” Robert Mabro said. “‘Don’t misbehave, boys! If you start misbehaving, we might intervene.’ But we aren’t going to be there all the time.”

From an economic vantage point, a strategy based on Realpolitik makes sense. To meet the rising demand for oil in the coming decades, the Gulf states need to spend tens of billions of dollars on expanding their capacity, an enormous capital investment that is unlikely to materialize in a hostile environment. Some opec members already favor keeping the supply tight so that prices will stay high. As in the past, the West will have to rely on the Saudi government to be the voice of moderation. “If you are sitting on a very large reserve base, as Saudi Arabia is, you don’t want somebody coming along and saying, ‘We are really going to make a push to develop an alternative to the internal-combustion engine,’” Robert Ebel said. “You have a division of opinion within opec, but Saudi Arabia is big enough to call the shots.”

For decades, energy policy has been subject to a simple political divide: Republicans tend to favor increasing supply; Democrats tend to favor reducing demand. If this split ever made sense, it doesn’t any longer—something that Senator Kerry, to his credit, has grasped, despite his lack of candor about Middle East oil. “There is no single thing out there that is going to solve the problem,” Larry Goldstein said. “You have to focus on the supply side as well as the demand side.” Amy Myers Jaffe, a senior fellow at Rice University’s James A. Baker III Institute for Public Policy, who heads a joint task force on the future of energy with the Council on Foreign Relations, concurs. “A coherent policy has to be a combination of everything,” she said.
Considering Americans’ voracious demand for fuel, the first step is conservation. The measures that Bush and Kerry have proposed, such as providing tax breaks to people who buy gas-electricity hybrids and cars powered by hydrogen fuel cells, are halfhearted. (American carmakers have just started to market these vehicles, in very limited numbers.) A quicker and less costly way to conserve fuel would be to tighten up the Corporate Average Fuel Efficiency standards, which President Ford introduced. The fuel-efficiency requirements—27.5 miles per gallon for cars; 21 miles per gallon for light trucks—have hardly been raised since 1986. Moreover, many S.U.V.s are officially classed as light trucks, which means they are subject to less stringent requirements. If this loophole was closed, at least according to some estimates, demand for gasoline would drop by a million barrels a day—two-thirds of what we import from Saudi Arabia. Yet neither candidate has been willing to face down the auto industry and come out in favor of making the change.

Getting serious about conservation would be a lot more practical than talking about the “hydrogen economy.” In January, 2002, the Bush Administration launched its FreedomCAR Initiative, which was intended to produce an affordable hydrogen-powered automobile within ten or fifteen years. Not to be outdone, Senator Kerry has called for the establishment of a taxpayer-funded Hydrogen Institute, which, his campaign says, would “unite scientists and researchers to create a New Energy Economy by 2020.” These grandiose plans are unlikely to be realized. In his new book, “The Hype About Hydrogen,” Joseph Romm, a former Assistant Secretary of Energy in the Clinton Administration, points out that as far back as 1923 the British scientist John Haldane described an energy economy based on liquefied hydrogen stored in underground tanks. Since Haldane’s day, a great deal of scientific effort has been expended on hydrogen fuel cells, but hydrogen-powered cars are still underpowered, unreliable, and costly. Hydrogen itself is also expensive, because it rarely exists in pure form. The cheapest way to obtain it is to burn coal or natural gas, which produces hydrogen and carbon dioxide.

For this reason, if no other, many experts say that increasing the supply of fossil fuels is essential. “It can’t be our policy that we will never drill for energy in the United States, that we will never have any new import terminals for liquid natural gas, or that we don’t mine coalfields,” Jaffe said. Many people seem to be confused about where the power to light their homes comes from, she went on. “You have movements of canoeists that want to shut down every hydroelectric plant in the country. You have people who believe we shouldn’t renew the leases for nuclear plants. Nobody wants a liquid-natural-gas terminal near their home. They don’t want any drilling for natural gas or oil. The public is really not up to speed on energy issues.”

Many Americans also appear to believe that they are entitled to cheap fuel, regardless of how much they consume. When gasoline hits two dollars a gallon, they look for somebody to blame—this despite the fact that gasoline is still cheaper than it was in the nineteen-seventies, after adjusting for inflation, and that it costs a lot less than it does abroad. In the United Kingdom, for example, a gallon of gasoline costs more than five dollars.
No prominent politician will say it publicly, but from an energy perspective an extended period of higher fuel prices might well be just what the country needs. Many of the problems we now face can be traced to the nineteen-nineties, when oil prices collapsed. Between 1976 and 1985, when gasoline prices were high, drivers switched to smaller, less wasteful cars, and oil consumption fell by ten per cent. Once oil prices slipped back, Americans returned to their beloved gas-guzzlers. Between 1985 and 2000, the demand for oil rose by almost twenty-five per cent.

Higher energy prices would have many beneficial effects. Besides encouraging gasoline conservation, they would help the renewable-energy sector, which can’t compete at today’s prices, and they also would make it economical to start exploiting nonconventional supplies of oil, such as oil shale in the Rockies, tar sands in Alberta, Canada, and heavy oil in Venezuela’s Orinoco Belt. “Under any reasonable economic scenario, in twenty-five or thirty years we will be using more alternative fuels,” Jeffrey Sachs said. “We will be gasifying coal and we will be liquefying tar sands, and doing a lot of things that mean opec’s bargaining power will be reduced.”

The most straightforward way to keep energy prices up, and the one that most developed countries adopt, is to tax hydrocarbons—a policy proposal long regarded as political suicide in the United States. The federal tax on gasoline hasn’t gone up since 1993, when President Clinton raised it a paltry four cents a gallon. Americans prefer lower prices at the pump even if they have to pay hundreds of billions of dollars in taxes to support a U.S. military presence in the Middle East. Amy Myers Jaffe has calculated that the cost to taxpayers of oil-related military activities is equivalent to about ten cents per gallon of gasoline. “We are being taxed on energy in this country,” she said. “It’s just hidden.”

Given the public’s ignorance about energy issues, and the entrenched interests that dominate the industry, many analysts are skeptical about the prospects for change. Jaffe believes that it will take a repeat of what happened in the seventies to force meaningful reforms. Joseph Romm said, “If people cared about oil imports they would buy different cars. In response to 9/11, people started putting flags on their S.U.V.s and buying Hummers. That tells you something.”

Before any progress can be made, the political debate will have to move beyond the myth of energy independence. “Sooner or later, we are going to have a lot of hybrid cars, electric cars, and, perhaps, at some time in the future, we are going to have a hydrogen economy,” Robert Mabro told me. “But, until we get there, to talk about energy independence is foolish. The two candidates, with due respect, are lying to the people, or they don’t know what they are talking about.”

Monday, October 25, 2004


Your host is reading a very interesting novel - Ishmael, by Daniel Quinn. An interesting and unexpected aspect has been its commentary that relates to the peak oil issue.

"Man's destiny was to conquer and rule the world, and this is what he's done - almost. He hasn't quite made it, and it looks as though this may be his undoing. The problem is that man's conquest of the world has itself devastated the world. And in spite of all the mastery we've attained, we don't have enough mastery to stop devastating the world - or to repair the devastation we've already wrought. We've poured our poisons into the world as though it were a bottomless pit - and we go on pouring our poisons into the world. We've gobbled up irreplaceable resources as though they could never run out - and we go on gobbling them up. It's hard to imagine how the world could survive another century of this abuse, but nobody's really doing anything about it. It's a problem our children will have to solve, or their children."

The story of human cultural history is told by a guru gorilla (a primate, not a soldier). It sounds peculiar, but so far, on page 81, it works. I will be ordering the sequel very soon.

You can find this book at Amazon. Here is a link: Ishmael.

Sunday, October 24, 2004

Bush has no doubts about Peak Oil

Post Carbon News Alert

Pulitzer Prize winning author and journalist, Ron Suskind reports for the New York Times Magazine that George W. Bush knows about oil peak. In fact, he's got a plan that extends beyond making Iraq the 51st state. In a confidential luncheon a block away from the White House with large campaign contributors, Bush gave a brief outline of a supply-side plan that is certain to irk environmentalists and anti-nuclear activists (which by the way are no longer always the same group), as well as anyone concerned about the efficacy and risks of carbon sequestration and the urgent need to put serious effort into reducing demand.

Bush's statements force us to question when did he and his advisors first know about peak oil? Was it before 9-11 during Cheney's energy task force deliberations? No, says Matt Simmons (chairman of Simmons & Company and member of the Bush-Cheney Energy Task Force transition team) in an interview with Kellia Ramares on KPFA Evening News in which he ardently states that there is no cover up to hide oil peak from the American public and that only a handful of people in the Bush Administration know about peak oil. Simmons believes that a number of well-known petroleum economists have been successful in convincing government that peak oil is a non-issue.

Can high oil prices be good for the world?

The Jakarta Post

If we take a very long-term view, it is not so clear that high oil prices are bad for the world as a whole. For example, if high oil prices were the result of taxes that were then redistributed to oil users, they would be unambiguously good.

To be sure, most taxes entail heavy "excess burdens": The cost is significantly greater than the value of the revenue raised because of potential taxpayers' myriad attempts at evasion and avoidance. A tax on oil, however, does not entail excess burdens. On the contrary, it implies excess benefits. Shifts to more energy-efficient means of transportation ease congestion. Attempts to shave costs by economizing on energy use reduce pollution. Higher prices for oil substitutes spur research into other energy technologies -- research that is much needed today if we are to tackle the problems of global climate change tomorrow.

A well-designed tax on oil would also reduce demand, thereby lowering the potential for windfall profits for those who rule or own the ground over the oil deposits. A little more than a decade ago, Lloyd Bentsen, President Bill Clinton's first Treasury Secretary, tried to ensure precisely that, proposing to use a "BTU tax" to close America's fiscal deficit.

The Republican Party and the American Petroleum Institute sank that proposal. A decade later, we have high oil prices, but they are not due to a well-designed tax, either in America or elsewhere. As a result, the price boom is boosting windfall profits for the owners of oil deposits rather than improving countries' public finances.

The Coming of Deindustrial Society: A Practical Response

With the coming of Peak Oil and the beginning of long-term, irreversible declines in the availability of fossil fuels (along with many other resources), modern industrial civilization faces a wrenching series of unwelcome transitions. This comes as a surprise only for those who haven't been paying attention. More than thirty years ago, the Club of Rome's epochal study The Limits to Growth pointed out that unless something was done, a global economy based on fantasies of perpetual growth would collide disastrously with the hard limits of a finite planet sometime in the early twenty-first century.

The early twenty-first century is here, nothing was done, and the consequences are arriving on schedule. The road that would have brought industrial society through a transformation to sustainability turned out to be the road not taken. The question that remains is what we can do with the limited time we have left.

World Living Beyond Its Environmental Means


The world is consuming some 20 percent more natural resources a year than the planet can produce, conservationist group WWF warned on Thursday.

Urging governments to move rapidly to restore the ecological balance, the Swiss-based group said rich countries, particularly in North America, were largely to blame for the situation.

"We are running up an ecological debt which we will not be able to pay off," Dr Claude Martin, director-general of WWF International, told a news conference.

Saturday, October 23, 2004


Charley Reese

If we as a species are going to survive, we are going to have to learn to live simpler lives. By that I mean consume less stuff. The world's poor are already living simpler lives, and not by their own choice, so it's up to us in the industrialized countries to set the example.

OK, I know this sounds preachy and far-fetched, not to mention being highly unlikely to influence anybody. Nevertheless, sooner by choice or later by necessity, we will have to recognize that we are, if we continue the present trend and lifestyle, going to consume our own planet. Our ancestors will look mighty funny one day clinging to the solar system's only orbiting trash dump while trying to choose between garbage and cannibalism as a source of food.

Consult any almanac and look at the exorbitant rate at which we are pumping oil, mining coal and other minerals, cutting forests, catching fish and dousing the land with ever-increasing amounts of fertilizers, pesticides and herbicides. There's no question we are just now beginning to run short of a lot of natural resources. The price of oil is just one example of what's in store for us unless we curb our appetites.

Friday, October 22, 2004

Peak Oil - The Big Story Of 2004

Global Scale Politics - Global Analysis on the World Crisis Web

The big end of the year recap story of 04 will not be Bush reelected, but peak oil. After years of underground speculation, the specter of Die Off in our time, right around the corner, is being debated even on the business pages.
Of course, the tyranny of the present discounts any perspective that demands radical change, but the reality of peaking production and escalating demand (especially in China and in India where oil use increased by more than 5% this year) is hard to ignore and the consequences are just a little bit scarier than even four more years of one of the worst US administrations ever.
The mother of all depressions, transportation stroke, a Fortress America trying to keep horrific catastrophe outside the walls. The specter of global-scale problems such as peak oil and global warming - even the Bush administration finally this year had to recognize that burning fossil fuels is leading to dangerous warming of the planet, and new disturbing climate science postulates run away warming - puts a much different lens on present day events such as Iraq.
If these global-scale problems are going to be the hallmark of the 21st century and in turn generate much more severe societal breakdown and turbulence, then we must make a conscious attempt to rid ourselves of lingering 20th century lens bias or at least add this global-scale appreciation to understanding how events and policy formation today will effect us tomorrow.
Iraq is a very good example. It’s the crude, dude. No WMDs; no link with terrorism; no danger to the US or even it’s Middle East neighbours - could Iraq have been an illegal war? Not just technically; not just fudged UN resolutions; not just impotent UN when something had to be done about Saddam. Saddam on hindsight was a mouse or rather, the danger from Iraq was wildly overblown. Saddam was only an excuse.
Zimbabwe’s President Mugabe has put a motion before the Organization of African Unity to marshal a force to bring badly needed democracy to the United States. Sorry, just kidding, but the notion that the war in Iraq was white hats liberating Iraq and bringing democracy to the Middle East is ludicrous.
This years awakening to the reality of peak oil must force a reappraisal of US actions in Iraq. Of course, there was a bundle of reasons for war, ranging from somewhat legitimate fear of open enemies of the US such as Saddam’s Iraq; through domestic political, Bush Admin personal and ideological reasons; post 911 hysteria / shock and awe deterrence; military-industrial complex and oil business opportunities; non-oil geopolitical reasons (Israel); and certainly most importantly, a range of control of oil geopolitical reasons.
Factoring in the peak oil specter, especially into re-evaluating the evidence of Bush Admin (PNAC/neocon) premeditation, and a scary new vista of 21st century resource wars emerges.
Iraq was a grab for oil, a first preemptive move in the endgame for oil. It was dangerously, criminally illegal because Iraq was a cynical and premeditated attempt to control oil for America’s future. As we move over the peak to the rapidly sloping fall off of oil production, seizing control of Iraq - whatever the pretense - will certainly be perceived as the choice of a military instead of possible cooperative, science-based approachs, and will increasingly be seen as such with disturbingly uncertain future consequences in a world were the rule of law has been seriously compromised.
In perhaps the best op-ed so far focusing on the differing American policy choices given peak oil, including the grab the oil policy, Robert Freeman delineates this unappreciated most important choice for Americans today:
"The alternative consequences of each choice could not be more dramatic. Weaning ourselves off of cheap oil, while not easy, will help ensure the vitality of the American economy and the survival of its political system. Choosing the route of force will almost certainly destroy the economy and doom America’s short experiment in democracy.
"To date, we have chosen the second alternative: to secure oil by force. The evidence of its consequences are all around us. They include the titanic US budget and trade deficits funding a gargantuan, globally-deployed military and the Patriot Act and its starkly anti-democratic rescissions of civil liberties. There is little time left to change this choice before its consequences become irreversible.
"As long as the US chooses the Grab the Oil alternative, the implications for national policy are inescapable. The combination of all these facts ­ fixed supply, rapid depletion, lack of alternatives, severity of consequences, and hostility of current stockholding countries ­ drive the US to have to adopt an aggressive (pre-emptive) military posture and to carry out a nakedly colonial expropriation of resources from weaker countries around the world."
While peak oil enjoyed a break out in 04, and even though most Americans know in their heart of hearts that Iraq was about oil, Americans, this election, have yet to really make the connection. And they do not yet remotely appreciate that the US must lead but at the same time subsume itself in rapidly developing a global-scale governance and cooperation framework necessary to deal with emerging global-scale problems.
Given this bigger picture a Kerry win in November might be worse then Bush reelection because what is really needed is a catalyst to escape business as usual thinking about a future that promises immense dislocation. A very educational big Bush loss after reelection might be that needed catalyst. Those that remember Watergate will recall that the hardballer Tricky Dicky won reelection in 72 and then the fun started. There is still a lot to come out about Iraq and its not too late yet to reverse from the grab the oil policy path.

Thursday, October 21, 2004

Humans currently consume 20% more natural resources than the earth can produce

Humans currently consume 20% more natural resources than the earth can produce, says a new report that examines the ecological effect of modern consumption patterns on natural resources.

The 'ecological footprint' of a North American is eight times the size of the average African's, and an average European draws about four times as much of the earth's resources as the average Asian, states the WWF's 'Living Planet Report 2004' launched in Brussels yesterday.

Humanity had already gone beyond the earth's capacity by the end of the eighties and we're now, "spending nature's capital much faster than it can regenerate," says WWF director-general Claude Martin, quoted in an Inter Press Service Agency report.

And while the human population keeps growing, the population of 'other' species is plummeting.

"The depletion is caused by an increasing demand for energy and natural resources, the report says.

Particularly alarming is our energy footprint, dominated by our use of fossil oils such as coal, gas and oil, the conservation group says, according to ISP, whihc adds the 'footprint' is a rough estimate of what an average person produces and consumes, converted into hectares. It measures how much land and water area a human population requires to produce the resources it consumes and to absorb its wastes, given prevailing technology.

This is said to have increased 700% since 1961.
See: eight times - A Footprint About a Fifth Too Large, Inter Pree Service Agency, October 21, 2004

Wednesday, October 20, 2004

Greens query oil price forecasts

The New Zealand Herald

The (New Zealand) Green Party's two co-leaders grilled Government officials yesterday about grossly inaccurate forecasts made last October about future oil prices.

The Economic Development Ministry forecast oil would be US$20 a barrel this year, rise to US$25 a barrel by 2020 and be stable thereafter.

The information was based on United States Government and International Energy Agency data.

But Greens co-leader Jeanette Fitzsimons said in questioning ministry officials at the finance and expenditure select committee that within a month of the forecast it had been exceeded and the price was now about US$54 a barrel.
She asked if the ministry was rethinking whether it should broaden the range of sources it used in such forecasts.

Tuesday, October 19, 2004

Is Oil Heading For $100?

Stephen Leeb, president of Leeb Capital Management, a New York investment manager and author of The Oil Factor (Warner Business 2004). estimates that if China and India continue to grow, the demand for oil will rise by 6.1% per year. To meet such demand, the world would have to raise output by 43% by 2010 and to triple it in 20 years.

Is such an increase plausible? Matthew Simmons, chairman of Simmons & Company International, an energy banking firm in Houston, points out that, while new discoveries are certainly possible, even likely, 70% of the world's daily supply comes from fields that have been drilled for 30 years or more. Leeb adds that even Saudi Arabia, despite a stagnant economy, consumes 24% of the oil it drills. In order for it to boost production, it will have to consume a higher percentage
of what it makes. As for the world's second largest oil exporter, Russia, if its economy weren't a basket case, it might be using its entire output internally.

Leeb says that during the last oil crisis, the world was producing at 70% capacity. Now it's at 99%. Because there is no slack in the system, every time there is a trial in Russia, a strike in Venezuela, a hurricane off Louisiana or a surge in violence in the Middle East, the oil markets react dramatically. The good news is that we are more efficient than in the 1980s, and we spend a much smaller share of gross domestic product on energy. But while demand may slack off short term due to slower growth, the longer term is troubling regardless of new production technology or far better conservation.

Where have we heard this before? In the 1970s and 1980s, some prognosticators spoke about the world "running out of oil." That prospect is not what drives the current fears. It is the apparently inevitable supply-and-demand driven market movements that may force the price of oil to $100. And that's a lot scarier.

Sunday, October 17, 2004

Peak Oil? Include Me Out

Thoughts from a Once-Burned Y2K Activist
by Mick Winter

On December 31, 1999 when the clocks ticked for the last time in the old year and then proceeded to quite happily keep ticking their chronological way into the new, hundreds of millions of people around the world rejoiced as they welcomed the 21st millennium. At the same time, thousands of people looked at their television sets and the still-glowing lights of their homes and cities, and immediately realized that they now looked like idiots.

These "idiots" were the Y2K activists who had for several previous years been warning their families, their friends, their communities and their countries about the year-end computer problem. They knew the problem was not a computer bug, but a simple programming decision made decades earlier. And that this decision would inevitably lead to errors in computer data beginning January 1, 2000 that could, if not changed, rapidly grow and spread—with disastrous results. They also knew that the Y2K problem was easily fixed. It was the monumental amount of fixing required that concerned them. Many did not think it possible for adequate repair work to be completed in time.

But it was, and the world proceeded nicely into the 21st century (in the eyes of more than six billion people—a few purists still (accurately) refused to accept the new millennium's birth until 2001.)

Most Y2K activists had not enjoyed what they were doing while they were doing it. None of their friends and neighbors really wanted to hear a message of impending doom. The activists had long known that the best they could hope for on January 1, 2000 was that they would end up looking like fools. Fool status would indicate success. It would be proof that The End of The World As We Know It (or TEOTWAWKI in Y2K-speak) had not happened, and that computer systems and society had continued to purr along.

The systems did indeed keep purring along, largely because governments and corporations had spent hundreds of billions of dollars worldwide on programming and new computer systems. Was this expense necessary? A few states and corporations kept their old "legacy" systems running just to see what would happen after the turn of the millennium. These systems still had the old two-digit date field for the year instead of the new, Y2K-approved four-digit field. What happened to these old systems in the new year? They crashed. They choked. Or, even more insidiously, they kept going, outwardly innocent, but inwardly corrupt. And the testers looked at one another, and the CEOs and the CIOs and the CFOs looked at one another, and they saw what they had done, and they were pleased. The huge expenditures really had been worth it. Spending vast sums to cover their ass had been justified.

Did we say everything continued to purr along? Well, not exactly. There were rumors that some companies, including some very major companies, didn't get the Y2K work done, for whatever reasons. Rumor has it that the various accounting problems and other internal misadventures that lead to the fiscal demise of these companies had been caused by none other than the Y2K problem. But, as we say, these are rumors. And regardless, the planet survived quite nicely, thank you.

For the time being.
Two Digits? Big Deal
Why did Y2K activists get so excited about a little two-digit data entry field? Because of their research. Or at least because of their research into other people's research, because the panic—and probably the successful repair—of the Y2K problem would likely never have happened without the mass communication and information sharing capabilities of the Internet.

Their research made them aware of a sort of technological ecology, the interdependence of complex systems all over the planet, systems on which we rely for information exchange, financial transactions, and the movement of energy and goods from town to town, state to state, and country to country.

The Y2K folks realized that a little computer error could corrupt or bring down a computer system, and that system, whether dead or just dirty, could corrupt or bring down another computer system—even a "clean" one—with which it conducted transactions. And that those two computer systems could...well, as someone once said about history, it's "just one damn thing after another."

The activists also discovered that there is a very delicate dance between computer systems around the planet and the artifacts—both real and virtual—which they help exchange. And that participants in that dance include the factories, offices and consumers who use those artifacts, whether they be dollars, euros, yen, barrels of oil, watts of electricity, bags of cement, bytes of information, vegetables, cartons of milk, bullets, or video games and Barbie dolls.

Several factors make this global dance both fascinating and perilous. One is that goods used by consumers in industrial societies can—and often have to—travel many thousands of miles from producer to home or supermarket shelf—the so-called "3,000 mile Caesar salad".

The other factor is that great cost-reducing achievement of inventory-free companies—the "Just In Time" process. Factories and supermarkets no longer need mammoth warehouses to store parts and goods as they await their appearance on the assembly line or supermarket shelf. We now have "rolling warehouses". Inventory is constantly on the road, traveling in huge tractor-trailers from port or manufacturer to the location where it's needed, arriving Just In Time for sale or use. Just In Time could not happen without global communication, scheduling and inventory-tracking, all requiring complex computer systems.

So Y2K activists understood that our societal circulatory and nervous systems are, in reality, based upon a thin and fragile network of intricate actions and relationships. And they believed that it would not take much to screw it up. The immediate threat that they saw was Y2K, but many of them also noticed other threats on the not-so-distant horizon. One of them was Peak Oil.
Peak Oil
Peak Oil. (see is usually spelled with initial caps to make it look more sensational. That's hardly necessary, but we'll do it to keep with tradition. Peak Oil was low on the radar in 1999, but Y2Kers had sensitive antenna—many would say too sensitive—and Peak Oil fit right in with their paranoia (only they preferred to call it sensible caution) about interdependence, sustainability, and complex systems.

Peak Oil simply meant that oil resources on the planet were finite and that there would come a point in time when one day less oil would be extracted than on the previous day. And the following day even less. And so on, no matter how much exploration was done, no matter how efficient the new extraction technologies developed. There would come a point when less and less oil was available for the industrialized societies of the planet. Oil production would have peaked.

This would be alarming in itself because the needs of already-industrialized countries are increasing—dramatically. Think growing populations. Think ever-increasing demand for power plants. Think SUVs. Think the production of more and more stuff.

But an even greater threat (more objectively—competition) were those previously underdeveloped countries that were now leapfrogging into the 21st century and demanding consumer equity with the long-developed—and perhaps over-developed—countries. Think one billion Indians. Think 1.3 billion Chinese. (Even more useful, think a combined 2.3 billion Indians and Chinese with a relatively small, but by their very existence quite significant, number of nuclear weapons.)

Consumers in the west continued to act as if petroleum resources were unlimited and indeed, in the United States at least, they were assured by their government that resources were unlimited, thanks to the grace of God and the tax-deductible, off-shore wisdom of the oil companies.

However, the underlying concern of Y2Kers is that all resources are finite, and that local communities, whether Gotham City or Hog Hollow, are too dependent on outside resources, and too little dependent on their own resources.

Y2Kers had always dreamed of local sustainability. They wanted local communities to be able to provide their own basic foods, their own basic energy needs, their own basic essentials of life. Projects were proposed for the home, the neighborhood, the city. They involved home and neighborhood gardens; home, neighborhood and city power generation, and neighborhood and city-wide cooperation. In short, their goal was do everything locally that's possible to do locally, and to save the national and global activities for only those things that absolutely have to be done on national and global levels. Yes, they really did want everyone to "Think (and Communicate) Globally, Act Locally."

Activists saw Y2K as a golden opportunity for communities to become self-aware, to realize the vulnerability of long-supply chains, and to jump at the chance to work with their neighbors to create close-knit, cooperative communities that could survive on their own. Not with exuberant riches, perhaps, but the operative word here was survival. That and the very human feeling of satisfaction that comes from cooperating successfully with other humans.

Local community sustainability was a nice dream, but the golden opportunity, with few exceptions, turned to lead. Y2K turned out to be a non-event, and Y2Kers slunk off—albeit often with heads held high, a physically challenging but not inappropriate position—many to endure the ridicule of their communities, the media, and, frequently, their families, including the brother-in-law who had said that Y2Kers were crackpots and nothing was ever going to bring down the good old U.S. of A.
America Means Never Having to Say You're On Empty
In 1956, M. King Hubbert, a highly-respected geophysicist in the oil industry, predicted that oil production in the "lower-48" of the United States would peak in the early 1970s. Despite his high standing in the industry, his prediction was greeted with skepticism at best, and, more commonly, with guffaws. It turned out that oil production in the United States did peak—around 1970.

In 1974, Hubbert predicted that worldwide oil production would peak around 1995. It didn't, but many believe that was only because the oil crisis and lowered production of the 1970s slowed the process down.

Scientists who support Hubbert's calculations, and who have done analyses of their own, predict that global oil production will peak no later than 2015, and possibly as early as...2004. (The predictions vary, but all, even the non-doomsayers, recognize that oil is finite and its plentiful end will come.) Just as production in the U.S. peaked around 1970, and Alaska's North Slope did in the late 1990s, so is production peaking in the North Sea. In fact, oil production has already peaked in 50 oil-producing countries around the planet.

Only the Middle East has kept worldwide production figures from peaking. More than 70 percent of remaining oil reserves is in just five Middle Eastern countries: Iran, Iraq, Kuwait, Saudi Arabia, Oman. (Drilling in the Arctic National Wildlife Refuge would give the United States only three months worth of oil, but the destruction would be forever.)

Peak Oil is not the same as running out of oil. It means the end of cheap, plentiful oil. It means there will be less and less oil available at a time when there is more and more demand. Production will be decreasing as demand is increasing.

Global oil production has not yet peaked. Probably. Maybe. Although it does seem to have plateaued in the last few years. As always, it is several years afterwards before it is clear that it has indeed peaked. However, there have been no new significant discoveries of major oil fields since the early 1960s, and discovery of smaller fields has been steadily declining. This year we will consume six times as much oil as we discover.

Interestingly, reported oil reserve capacity has risen, including a dramatic increase in the late 1980s. Skeptics point to the coincidence that those reserves increased at the same time that OPEC ruled that oil production would be limited to a percentage of known reserves. Thus: larger reserves = larger permitted oil production. Thus: six members of OPEC added 300 billion barrels of oil (with percentage increases ranging from 42% to 197%) to their reserve figures without reporting any new discoveries. Most experts agree that no scientific data have been presented to justify the claimed increases in oil reserve capacity. And then there was the Royal Dutch/Shell scandal of 2004, where the company had to admit that it had knowingly overstated its reserves by more than 20%.

Current global demand is around 80 million barrels per day, which is expected to increase by more than 2/3 by 2015. The International Energy Agency estimated that demand worldwide would grow this year by a record 2.5 million barrels per day, up 3.2 percent from last year. A third of that growth is China, whose need for oil is increasing by more than 20 percent a year. The 2004 China is consuming 830,000 barrels per day more than the 2003 China. (The United States, meanwhile, increased its oil demand by 14 percent.)

China is the second largest importer of oil in the world, followed by Japan in third place, and preceded by the United States, way in first place. China is banning bicycles in cities in favor of automobiles. In 2003 two million cars were sold in China, up 70% from the previous year. China may need 10 million barrels/day by 2025 (it's currently using about 5 million). Meanwhile, the U.S. used 7.2 billion barrels in 2002, (that's over 20 million barrels a day) and had to import more than half of it. It's estimated that the U.S. will need 50% more oil in another 20 years. Does this suggest there might be some possible disagreements between the U.S. and China in the future?

The countries of the world consume more than 1 billion barrels of oil every 11.5 days. In 2003, for the first year since the 1920s, not one megafield (500 million barrels or more) of oil was discovered. The number had been declining. There were 16 in 2000, eight in 2001, three in 2002. This is not a reassuring trend. And keep in mind that a 500 million barrel megafield is only going to provide the world with oil for less than six days.

Oil companies are raking in record profits, but are not translating that into record investment in new facilities. In fact, they haven't built a new refinery in the United States since 1976. Is this just because they're greedy and want to cut expenses so they can maximize share price and corporate officer salaries? Only partially. Perhaps they also recognize that there is no sense in spending a lot of money expanding facilities when the stuff those facilities process is just about to start contracting.

Few people believe that current supplies of oil can keep up with the projected increase in demand.. A decrease in available oil supplies most certainly could not. The result would be increased demand with decreased production. Prices would rise; the cost of fuel, petroleum-based supplies (think fertilizers and pesticides) and transportation would increase. The cycle would become vicious, as prices increased and availability of oil and its related products decreased. Advancement of many societies would come to a halt, and already advanced societies would find themselves beginning to backslide.

Do we really need as much oil as we use? Well, for openers, all commercial pesticides are made from petroleum. Almost every internal combustion engine on the planet is powered by petroleum, and that includes more than 600 million vehicles. Each one of the tires on those vehicles take an average of six gallons of oil to produce. Almost all transportation, whether vehicle, plane, ship or train, is powered by petroleum or by electricity generated by petroleum or natural gas (which is also nearing peak). All plastics are produced from petroleum. Forty percent of electricity worldwide is produced by petroleum. Americans use about 3 gallons a day per person. (Your individual needs are probably a bit higher if you drive a 10-mile per gallon Hummer). The U.S. currently uses 26% of the world's oil production every day, even though it has less than 5% of the population.

Peak Oil is not a problem that has a solution. Global society runs on oil—and natural gas—and those fuels cannot be created out of thin air. (There are, however, some who believe that oil is produced not by a long-ago process from organic matter but by a still ongoing "abiotic" process from volcanic magma). While advocates of alternative energy have proclaimed for decades that they have the solution—or rather replacement—with solar power, wind power, tide generators, hydro power, and the like, the reality is that our society and all its many complicated systems are powered by fossil fuel. To totally remake the global infrastructure cannot be done in many decades, let alone a few years. Even the much heralded "hydrogen economy" holds minimal short-range hope. Hydrogen has its place, but that place is not as an energy saver. Fuel cells store energy, they don't produce it. And it takes large amounts of energy to produce those cells. Currently fossil fuels are the primary source of that energy.

Well, then, what are we going to do? How does American society maintain its standard of living?

If that's your question—rather than "How does planetary society maintain (and increase) its standard of living?"—there is a group of people in Washington, D.C. that has an answer. Not an answer that those people have actually shared with the American public, however.
Iraq—Doing the Wrong Thing for the Right Reason?
Let's suppose you are a member of the Bush Administration. Let's suppose you are someone who is familiar with the oil industry. But, as Mark Twain once said about Congressmen and idiots, I repeat myself.

George W. Bush, President - Most of his business background, such as it was, is oil—Texas and Saudi. His family for decades has had close, almost familial, even almost incestuous, contact with Saudi Oil and the Saudi royal family.

Dick Cheney, Vice-President - Former CEO of Halliburton, world's largest oil-services company.

Spencer Abraham, Secretary of Energy - Former senator from the U.S. automobile industry state of Michigan.

Condaleeza Rice, National Security Adviser - Formerly a member of the Board of Directors of Chevron for nine years. Even had an oil tanker named in her honor. (It was renamed the Altair Voyager—a much more politically safe name—after she became National Security Advisor.)

Don Evans, Secretary of Commerce - Former CEO of oil company Tom Brown, Inc. and member of the board of Sharp Drilling, an oil industry contractor.

Andrew Card, Bush's Chief of Staff - Former Vice President, Governmental Affairs for General Motors.

Do you really believe that these people don't know about Peak Oil?

Let's suppose you are president of the United States, you're well aware of Peak Oil, and you're responsible for the national security of the country, and the well being of its people. Oh, and for the well being of the boards of directors of its major corporations.

For democratic purposes—that is, to ensure that people keep re-electing you and your friends and colleagues—you need to make sure that American citizens—at least those that vote, who tend to be older, whiter and better off financially—can continue to enjoy their current lifestyle, excesses and all.

Basically, you have two options. Both lead to maintaining the current lifestyle of the voter—as long as possible.

1. You appear in a televised talk before the country and inform its citizens about Peak Oil. You announce a dramatic new project to create not only a sustainable country, but sustainable cities, neighborhoods and homes. Crash programs are to be initiated with massive funding and tax-incentives to provide all homes, offices and factories with alternative, sustainable sources of energy. Automobile production will be stopped, and not allowed to proceed until vehicles meet stringent gas economy standards. Energy conservation will be mandated and all possible efforts will be made to reduce the oil, natural gas and electricity requirements of the country. You announce also that energy is a worldwide problem, not just an American one, and that you will work closely with all governments of the world to ensure that all peoples of the world have sufficient energy resources. While you're at it, you throw in programs for clean air and water as well.


2. You use your military forces to attack countries with large oil reserves, under whichever pretext seems to work at the moment, in order to gain and maintain control of those reserves to ensure that their priority customer is the United States. This includes using false threats (Weapons of mass destruction, Al Qaeda connection, nuclear weapons) as an initial cover. (When those later don't work, you can switch to the "cover within a cover", i.e., bringing The Magic of Democracy, Freedom and Free Enterprise to the Downtrodden [fill in the blank] People. This is helped by the efforts of neo-conservatives, who know nothing about Peak Oil, but think they're using you for their purposes but are in fact being used by you as cover for your own oily purposes).

Okay. You're rich, you've come out of the oil industry, you have a strong belief that the wealthy deserve their privileges and bank accounts, and you don't much care what happens to people in other countries, let alone know anything about them. You also think it wouldn't hurt to throw a few billion dollar contracts to friends and colleagues who have looked after you in the past.

You'd also like to make sure that the owner of some valuable oil real estate doesn't switch his oil sales over to euros from dollars, which could put your economy into a tailspin. And you have the certainty that whichever choice you make, God is on your side. (If you happen to believe in God. If not, it works anyway as good PR.) Which choice do you think you'll make?

Possibly you might wonder why not everyone appreciates your choice. Where are the rose petals and cheering crowds in the streets of your own country, let alone the ones you liberated from whomever was the Evildoer of the Month? But when it comes down to it, you don't much give a damn. They only have to like you once every four years.

Does the Bush Administration really think that Peak Oil is a serious threat? Think Iraq, with the second largest oil reserves in the world. Think Saudi Arabia—right next to it—with the largest oil reserves in the world. Think that country in-between U.S.-controlled Iraq and U.S.-controlled Afghanistan. (Hint: It used to be called Persia, has almost as much oil as Kuwait and has the third largest natural gas reserves in the world.) Think neighboring Mexico, with larger oil reserves than the U.S.. Think Venezuela, whose oil reserves place it sixth or seventh place in the world and whose natural gas reserves come in seventh. Think planned pullout of 70,00 U.S. troops from Europe. Think whether U.S. forces are closer to Venezuela and Mexico if they are based in Germany or in the United States. For that matter, think of "good neighbor" Canada, which is required by NAFTA to sell the United States oil and natural gas even if it doesn't have enough for its own use.

Of course, not everyone agrees with choice #2, particularly since the words "Peak Oil" have never been officially mentioned to the American public, let alone explained.

But many of the now-retired Y2K people do know about Peak Oil. They do know what's going on. And they do see the dangers inherent in Peak Oil. But are they going to come out of retirement, dig their soapboxes out of the attic or garage, stand tall in the public square and once again warn that their communities are imperiled? After what happened last time? How much credibility do you think they have left as apocalyptic prophets? Could they preach to the multitudes and proclaim the Second Coming of Potential Disaster? Maybe even proclaim that the Bush Administration, while it might have made the wrong choice, at least had somewhat—God help us—noble intentions. (Or at least quasi-noble.)

Not bloody likely.
But Wouldn't It Be Fun? [sigh]
There's no doubt that for Y2Kers nostalgic for the good old days, Peak Oil does offer much of the same allure.

Peak Oil could affect the planetary infrastructure, impacting transportation, communication, and the shipment of goods, something Y2K folks are already well familiar with and for which they have long lists of preparations for Things That Could Go Wrong.
Activists would have to rely on specialized experts, rather than their own experience and knowledge, just as they had had to depend on the knowledge of experts for Y2K. It's the intellectual equivalent of "I'm only following orders".
There is still time for Y2Kers to get ahead of the pack, and become Admired Peak Oil Leaders in their communities.
Peak Oil might actually happen, giving activists the opportunity to Do Good and possibly even Save Lives.
There are qualified experts on both sides who violently disagree whether or not there is a real, immediate threat. This immediately sets up the Lying Establishment versus Truth-telling Maverick dichotomy that Y2Kers love so well.
Peak Oil has a short time frame (Sure, it's vague. "Sometime between 2004 and 2015 (or maybe 2025)" is not as precise as midnight, December 31, 1999, but it's better than "sometime in the next few centuries" which is all that global warming, or maybe even the Gulf Stream Shutdown, can offer.)
Disaster is promised, which really gets the old adrenaline going.
Preparations can be taken, which means lots of Things To Do and Buy.
Community-focused sustainability will be useful (maybe even essential)—a concept dear to the hearts of Y2Kers.
Multinational corporations could be badly hurt or even destroyed, which is always a plus.
Evil governments could be brought down. Of course good ones could too, but there are far fewer of those.
Because so many of the likely effects could be exactly the same as Y2K was supposed to have produced, Y2Kers could become Peak Oil activists with only minimal retraining.
Y2Kers can dig out all their old Y2K fact sheets, essays and manuals and, with simple Find and Replace word processing, bring them quickly up to date.
It gives them an excuse to spend lots of time on the Internet.

There is no doubt Peak Oil has a lot to offer. The downside offers far less. Unfortunately, for some it could be a show-stopper.

Who would believe a former Y2K activist about Peak Oil, when he'd already been wrong about Y2K?
Who would believe anyone about Peak Oil, when apparently almost everybody had been wrong about Y2K?
What if the experts who predict Peak Oil are wrong, just as the computer experts who said the Y2K problem couldn't be remediated in time were wrong. Why does it feel like déjà vu all over again?
Why would a former Y2K activist want to look like an idiot again?
Start (and Finish) the Party Without Me
Bummer. That downside really is a downer. So, what to do? Well, Y2K veterans could quietly move to small towns and villages in the countryside and equally quietly work with their new communities to increase local self-reliance and sustainability. Or they might move to warmer, slower, cheaper and less oil-dependent climes such as much of Mexico and Central America (see—to name just a few areas close to the U.S.—where farmers grow crops without natural gas-based fertilizers, have no use for petroleum-based pesticides, nor need heating oil for the non-existent winters. Or they could simply stay where they are, forget they ever heard about Peak Oil, and go about their lives, just as almost everyone else did for Y2K.

These now quietly retired Y2K activists were successful fools once, but most have no particular desire to repeat the experience. They were no shepherd boys playing a prank on villagers. Their original cry of wolf was legitimate. And the villagers that mattered responded and sent the wolf packing. But few people really got the deep, underlying message of sustainability that first time, and these former activists see no chance of success from a second cry. Other, newer activists can give it a try if they wish.

Besides, crying wolf is of value only when the wolf is still in the distance and there's time for the villagers to take action.

This time, however, the wolf might be right at the door.

Mick Winter is a former Y2K community activist who currently suffers from chronic déjà vu and still hasn't figured out what to do about Peak Oil.

Copyright © 2004 by Mick Winter. Permission is given to freely distribute as long as no changes or charges are made, and this notice and website link are included.

Saturday, October 16, 2004

Global Scale Politics

Global Scale Politics

“If you knew about Hubbert's Peak a decade ago - as oilmen Bush and Cheney surely did - perhaps you would regard occupation of Afghanistan and Iraq as an ugly but necessary price to pay in order to secure sufficient time for the U.S. economy to convert?

”Invading Iraq, writes Heinberg, ‘was more understandable - if no less morally and tactically questionable - when viewed in light of a single piece of information to which the administration was privy, but which was obscure to the vast majority of the world's population. That crucial fact was that the rate of global production was about to peak.’"

This years awakening to the reality of peak oil must force a reappraisal of US actions in Iraq. Of course, there was a bundle of reasons for war ranging from somewhat legitimate fear of open enemies of the US such as Saddam's Iraq; through domestic political, Bush Admin personal and ideological reasons; post 911 hysteria / shock and awe deterrence; military-industrial complex and oil business opportunities; non-oil geopolitical reasons (Israel); and certainly most importantly, a range of control of oil geopolitical reasons.

Factoring in the peak oil specter, especially into re-evaluating the evidence of Bush Admin (PNAC /neo con) premeditation, and a scary new vista of 21st century resource wars emerges.