Peak Oil News: 06/01/2009 - 07/01/2009

Friday, June 26, 2009

Peak Oil Blues

Peak Oil Blues

Are you 'coping' or 'freaking out' about Peak Oil?

What's a 'normal' reaction to learning about a post-oil world?

Fear? Anxiety? Shock? Depression?

No one really knows.

Many people say preparation is "90% mental," but how do you separate out what's "mental preparation" from what's just "acting mental?"

Here we explore what we've learned about various emotional reactions.

Our goal is to help you build the kind of world you want to live in. Sanely.

The Peak Oil Crisis: Stifling a Rebound

Falls Church News-Press Online

By Tom Whipple

Since the beginning of the economic troubles some 18 months ago, the question on nearly everyone's mind was; "When will the recovery begin?"

A lot of water has gone over the dam in the last 18 months. An official recession has been declared, millions have lost their jobs, much of Detroit has gone bankrupt and the government has spent trillions on bailouts and stimuli. Three months ago the collective wisdom of investors concluded that the recession was nearly over. This resulted in one of the faster rebounds the stock markets have ever known --- based on the flimsiest of evidence and much wishful thinking.

In the last six months the demand for oil has fallen and stockpiles grew while, oddly enough, prices rose. Part of this increase was caused by speculators hedging against the falling dollar, and part was caused by still more wishful thinking that the demand for oil would soon recover.

A year ago prices rose to the previously unimaginable high of almost $150 a barrel. Oil producers made one last effort to keep up with demand and in doing so may have pushed world oil production to an all time high - the "peak" in peak oil. While it took six years for oil prices to climb, it only took six months for them to plunge into the $30's causing panic amongst the exporters of OPEC.

This led to a series of OPEC production cutbacks which were supposed to reach 4.2 million barrels a day (b/d) but petered out around 3 million due to quota-cheating by several of the more desperate and less honorable OPEC members. In the world outside of OPEC oil production has been steady in the last year with some notable drops in production. In Mexico, output from its largest oil field has been dropping much faster than expected due to depletion. In Nigeria insurgent attacks on oil facilities have brought production down to about 1 million b/d when the country should be producing closer to 3 million. In Venezuela, President Chavez has been busy expropriating the remaining pieces of the oil industry still owned by foreigners. Drops in production can be expected soon.

The net result of all these voluntary and involuntary cuts is that world oil production has dropped significantly since reaching an all-time high last year. This drop in production when coupled with the normal declines in output from aging oil fields and the prospects that less oil will be coming into production from new fields than expected, has led many to declare that the all time peak in world oil production took place last year. While it will take several years to verify that this was indeed the case, inability of the world's oil industries to ever again increase production has unfathomable implications which are not as yet widely recognized.

A corollary of the low oil prices and the lack of easy credit have led to a slowdown in the investment going into new oil production projects. While this has little immediate impact on the availability of oil, some years down the line it means that all of the new oil needed to offset depletion will simply not be there and that world production will decline faster than expected.

One can conjure up numerous scenarios of how oil, which at least currently is indispensible for economic growth, may or may not play a part in an economic rebound.

One scenario could be that the credit and financial markets are so far beyond redemption that the world economy will continue to decline indefinitely without reference to how much oil is available. The demand for oil would continue to decline and prices would remain relatively low so that there will continue to be sufficient oil available to support the deteriorating world economy. This scenario, of course, is one that few are willing to entertain, especially in light of the trillions being spent by governments all over the world to revive their economies.

While the notion of a quick recovery this year or early next year seems to be fading, most now believe that while a recovery may be slower than we would like, it will come eventually - it always has, particularly in the experiences of most living today.

The latest estimates from the International Monetary Fund say that world-wide GDP will be down about 2.7 percent this year. The world's spare oil production capacity currently is around six million b/d. This, however, is not a static number as the world's capacity to produce oil from existing sources is withering away at 3 or 4 million b/d each year and unless this much new supply is opened, then total world supply must inevitably shrink.

Now there is no question that very high oil prices would quickly choke off economic growth. Every dollar per gallon increase in the price of oil products drains about $800 million each day from the pockets of consumers in America. Worldwide it drains about $3.5 billion each day. Most observers believe that as soon as worldwide demand for oil gets ahead of supply there will be multi-dollar per gallon increases in the prices of oil products.

There seems to be little doubt that over the next few years, the world's oil supply will be forced into irretrievable decline from a combination of geologic and geopolitical reasons coupled with a lack of adequate investment. Should the demand for oil increase in the next year or so, there will still be some room for increased production without unacceptable prices increases for a while. The longer a recovery is delayed, however, the better the chances that oil prices will quickly surge to recovery-choking levels. While there are long-term solutions to this problem they will take decades to implement.

At last some governments are worried about the slowly emerging situation. Last week the British Prime Minister ordered his cabinet to start working on emergency plans to prevent rising oil prices from destroying the prospects that there will ever be an economic recovery.

Thursday, June 25, 2009

Do you believe in 'peak oil'?

Investors Chronicle

By Jonathan Eley

Debate has raged about 'peak oil' ever since Shell geologist M. King Hubbert first outlined the theory in 1956. It's the idea that once around half the world's reserves of oil have been extracted, production enters a slow and inevitable decline that no amount of investment can reverse. Believers in peak oil argue that once it becomes apparent that the peak is near, or even past, prices will rise sharply, and permanently. Detractors say the theory ignores geology and technological progress.

YES, says Matthew R. Simmons, founder of Simmons International:

"Many supposed energy experts refute peak oil, and mistakenly think the term means that we are running out of oil. Peak Oil does not mean "running out of oil". The world will likely never run out of oil, but the flow of usable oil has almost certainly already passed its high-water mark. Over the next five to ten years, our current oil supply will likely decline by as much as 15 to 25 per cent. In the meantime, despite the recent recession fears, the world's planned use of more oil is staggering.

The factors propelling growth in world demand for oil are simple. We have an expanding global population. There is no logical reason to assume that oil demand has peaked, or is even slowing down.

Oil consumption can never exceed available supply. So if supply dwindles, then demand must also stop growing, a task not easy to even contemplate. If demand grows while supply shrinks, shortages will occur. Human nature will create hoarding and oil consumers will begin "topping off their tanks". The risk of this occurring is far higher than most think.

The data proving that oil supply peaked in 2005 is not perfect, but it is solid enough for a jury to "convict with reasonable certainty." Just look at just the production declines from key producing countries like Mexico, Norway, the UK, Indonesia, Argentina, and many others in the past four years.

All that is needed to end the Peak Oil debate once and for all is an independent audit of the world's 300 largest producing oil fields. Sadly, too many of these fields, owned primarily by Opec countries, still guard their production and reserve numbers as "state secret." But the time is fast approaching when world leaders will demand honest facts about the flow rates of these key fields. When this happens, the proof that oil has already peaked will be air-tight. "

Simmons is an US investment bank specialising in services to energy companies.

NO, says Peter Odell, professor-emeritus of international energy studies, Erasmus University:

"Claimants for a near future peak in global oil production fail to recognise the processes whereby reserves and production evolve. They equally avoid the central role played by both economics and politics in equilibriating the markets.

The world's currently proven and potential reserves of oil - both conventional and non-conventional - eliminate any significant up-side restraints on the growth of production . On the contrary, near future constraints on oil supplies will be imposed by slow demand growth (of no more than 1.5% per annum).Thereafter, the eventual continuation of a steadily increasing supply of oil for global use will be based on the present creation and future maintenance of a 40-plus years' reserves-to-production ratio.

Peak-oilers, however, argue that annual additions to reserves which comprise both new discoveries and reserves' appreciation in previously-discovered fields should not be taken to indicate the replacement or replenishment of reserves' stock. Additions to reserves in previously found fields must be dated back to the year of initial discovery.

Backdating reserves with hindsight - in the context of newly developed technologies of reserves' assessments and recoverability - is simply inappropriate to the continuing economic evaluation of oil exploitation. It makes the past look more attractive than it really was, while the present is unjustly made to appear inadequate.

The current declaration of proven reserves of 1400 billion barrels will likely rise to 1750 billion barrels or more by 2020 so providing continuity for the future of the oil industry for decades ahead.

Even without any further discoveries peak oil production will not occur over this period. Unless, that is, the price of oil collapses so undermining profitable investments in the industry. Or as a consequence of a consistent fall in demand because of renewable energies' expansion. Only then, will peak global oil production necessarily occur."

Saturday, June 20, 2009

The Coming Oil Crisis

By Mohammed J. Herzallah

Canadian economist Jeff Rubin has a somewhat oracular reputation. Since 2000, he has predicted a massive oil-price spike, and he was among the first in 2007 to prophesy that oil would soar over $100 per barrel (a few months later, he said $150 a barrel and was basically proved right again). Now, even though oil has dropped considerably from its peak, Rubin warns that it's bound to skyrocket once more and cause another, even greater economic crisis. In his new book, Why Your World Is About to Get a Whole Lot Smaller, he lays out how this energy crunch will occur—and why it will spell the end of globalization.

The scenario goes something like this: the ongoing depletion of the world's oil resources, coupled with soaring demand from emerging economies like India and China, will send the price of crude through the roof, Rubin says. This will seriously escalate transportation costs, which in turn will cripple international trade, reverse commercial interdependence and disable the global economy. The resulting age will be one in which nations are isolated, technological progress is sluggish and travel is infrequent. The Middle East will be less relevant than it is today, and food scarcity will emerge as the foremost international problem. Countries with a shortage of arable land will scramble and compete to buy agricultural real estate from other nations (for example, as Saudi Arabia is already now doing in Sudan) to alleviate their ever-worsening food crises.

Rubin's future isn't all bad. To offset the effects of the energy crisis, governments will have to invest heavily in national infrastructure (especially public-transportation systems); national industries once hurt by outsourcing and foreign competition will thrive; and the environment will become cleaner as people are forced to use less fossil fuel and as cars disappear from the streets. But Rubin warns that governments can do only so much—successful adaptation to an energy-starved world will largely depend on individuals altering their energy-consumption norms. Still, he is willing to bet that people will make the right choices. All in all, he says, "don't be surprised if the new, smaller world that emerges isn't a lot more liveable and enjoyable than the one we are about to leave behind."

Rubin's argument is powerful. There's no denying that the international economy has become critically dependent on oil as its main source for energy. Yet, like other believers in the "peak oil" theory, he falls into the trap of underestimating society's capacity to meet future fuel challenges through innovation and conservation. The story of energy over the past century has been one of breakthroughs, not retreat—so although the energy problems we face today should be a cause for concern, global integration will continue to deepen and the world is not likely to get smaller any time soon.

Tuesday, June 16, 2009

The Peak Oil Crisis: A Letter From Baghdad

Falls Church News-Press Online

By Tom Whipple

A couple of weeks back the peak oil community received a letter from an officer serving with our forces in Iraq.

Despite numerous distractions in Iraq these days, this officer is so concerned that peaking world oil production will soon become a serious problem that he began discussing the future of America's energy supply with soldiers in his unit. What he concluded has a message for us all.

He found that most people have no trouble accepting the premises of peak oil- that there is a finite amount of crude underground, that the easy and cheap to extract oil is nearly gone and that world production will go into an unstoppable decline. The disconnect from reality, however, comes when contemplating the consequences of this event, for nearly all believe there are many obvious alternatives to oil. We know what they are: nuclear, solar, wind, waves, tides, shale, oil sands, coal-to-liquid, biomass, etc., etc. In the mind of most, it is a rather simple matter of switching from oil to any or all of the alternatives so that life-as-we-know-it can continue without missing a beat.

The more likely consequence, that peaking of world oil production will cause severe economic hardships that will take decades to mitigate is simply not a future that most are willing to entertain. Arguments that oil consumption has grown so large in the last 100 years that once depletion starts the development of similar amounts of alternative energy will take a very long time are simply not believed. This micro-survey makes an important point because it mirrors the common sentiment across the land as reflected by the media and political leaders. Even if oil should go into depletion someday --- there is simply not a problem.

Our letter-writer believes the reason for this commonly held opinion is the saturation of TV and the print media with the message that our oil companies are hard at work getting ready for the next generation of energy sources. Should we ever need alternatives to oil, all will be in readiness. Millions are spent on a continual drumbeat of such ads each month. They are impossible to avoid and have left most with the impression that all will be well - your oil industry is on the job.

This all-will-be-well message is always bereft of detail. Nowhere is there mention, of the vast amount of oil being consumed around the world each day, anticipated rates of depletion from existing oil fields, nor of the trillions of dollars that will be required to finance the next round of exploiting increasingly more difficult to recover oil. From time to time, the message is punctuated with the word "technology". Not any particular technology, just the implication that the technology which has brought our civilization this far will be there when we need it.

It comes as no great surprise to discover that American's perceptions are shaped by advertising and the mainstream media. In most cases, no great harm is done. A lot of advertising may elect a less than optimal candidate to public office or convince people that they really need to buy something. Usually, there is little harm done although from time to time concerted, successful efforts to set public opinion can have lasting and serious repercussions.

The current issue of the Columbia Review of Journalism contains a post mortem of how well the financial press covered the mortgage meltdown which triggered what could be turn out to be a very memorable recession. After reviewing 730 stories written between 2000 and 2007 pertaining to the mortgage industry, the authors concluded that in the main the financial press missed the run-up to the meltdown until it was too late. This left government convinced that it had to step in with trillions of dollars to stem a complete breakdown of the financial system. Although a few lonesome voices saw what was coming, as a society we were clueless until the banks started going under.

Just as millions were lulled by ever increasing home values that could make people rich, the same millions are being lulled by perceptions of a seemingly endless supply of cheap energy that will continue in some form so far into the future that we need not worry.

The heart of the peak oil question today is not whether oil is going to peak sometime soon - it probably already has. The issue is how soon people and their governments recognize that we are going to have to make substantial changes in our lifestyles and bear unprecedented costs in order to hold our civilization together in some recognizable fashion. Changes of this magnitude do not come easily.

Some hint of what is to come was seen last summer when a combination of factors drove gasoline prices in the U.S. to $4-5 a gallon. The initial political reaction was to denounce scapegoats - Arab oil producers, speculators, environmentalists. Fortunately or not our global recession intervened, forcing the demand for oil down by several million barrels per day taking the pressure off prices and delaying important decisions to another day.

For now, the matter rests. The new U.S. administration and congressional majority clearly is dedicated to reducing carbon emissions in a timely fashion and is taking many other steps that eventually could have an impact on oil consumption. However, there is still no official acknowledgement that adequate oil supplies are going to be a major problem in the near future and that hopes for a smooth transition to alternative forms of energy without sacrifices and expense is simply not going to happen.

Like the soldiers surveyed in Baghdad, a critical mass of Americans and their political leaders are simply not ready to accept the consequences of what is about to befall us. We were a lot closer to understanding during the price spike last summer. Now It seems clear that it is going to take much higher energy prices before we as a nation understand the consequences of peak oil.

Friday, June 12, 2009

It's Official -- The Era of Cheap Oil Is Over

By Michael T. Klare

    Every summer, the Energy Information Administration (EIA) of the U.S. Department of Energy issues its International Energy Outlook (IEO) -- a jam-packed compendium of data and analysis on the evolving world energy equation. For those with the background to interpret its key statistical findings, the release of the IEO can provide a unique opportunity to gauge important shifts in global energy trends, much as reports of routine Communist Party functions in the party journal Pravda once provided America's Kremlin watchers with insights into changes in the Soviet Union's top leadership circle.

    As it happens, the recent release of the 2009 IEO has provided energy watchers with a feast of significant revelations. By far the most significant disclosure: the IEO predicts a sharp drop in projected future world oil output (compared to previous expectations) and a corresponding increase in reliance on what are called "unconventional fuels" -- oil sands, ultra-deep oil, shale oil, and biofuels.

    So here's the headline for you: For the first time, the well-respected Energy Information Administration appears to be joining with those experts who have long argued that the era of cheap and plentiful oil is drawing to a close. Almost as notable, when it comes to news, the 2009 report highlights Asia's insatiable demand for energy and suggests that China is moving ever closer to the point at which it will overtake the United States as the world's number one energy consumer. Clearly, a new era of cutthroat energy competition is upon us.

    Peak Oil Becomes the New Norm

    As recently as 2007, the IEO projected that the global production of conventional oil (the stuff that comes gushing out of the ground in liquid form) would reach 107.2 million barrels per day in 2030, a substantial increase from the 81.5 million barrels produced in 2006. Now, in 2009, the latest edition of the report has grimly dropped that projected 2030 figure to just 93.1 million barrels per day -- in future-output terms, an eye-popping decline of 14.1 million expected barrels per day.

    Even when you add in the 2009 report's projection of a larger increase than once expected in the output of unconventional fuels, you still end up with a net projected decline of 11.1 million barrels per day in the global supply of liquid fuels (when compared to the IEO's soaring 2007 projected figures). What does this decline signify -- other than growing pessimism by energy experts when it comes to the international supply of petroleum liquids?

    Very simply, it indicates that the usually optimistic analysts at the Department of Energy now believe global fuel supplies will simply not be able to keep pace with rising world energy demands. For years now, assorted petroleum geologists and other energy types have been warning that world oil output is approaching a maximum sustainable daily level -- a peak -- and will subsequently go into decline, possibly producing global economic chaos. Whatever the timing of the arrival of peak oil's actual peak, there is growing agreement that we have, at last, made it into peak-oil territory, if not yet to the moment of irreversible decline.

    Until recently, Energy Information Administration officials scoffed at the notion that a peak in global oil output was imminent or that we should anticipate a contraction in the future availability of petroleum any time soon. "[We] expect conventional oil to peak closer to the middle than to the beginning of the 21st century," the 2004 IEO report stated emphatically.

    Consistent with this view, the EIA reported one year later that global production would reach a staggering 122.2 million barrels per day in 2025, more than 50% above the 2002 level of 80.0 million barrels per day. This was about as close to an explicit rejection of peak oil that you could get from the EIA's experts.

    Where Did All the Oil Go?

    Now, let's turn back to the 2009 edition. In 2025, according to this new report, world liquids output, conventional and unconventional, will reach only a relatively dismal 101.1 million barrels per day. Worse yet, conventional oil output will be just 89.6 million barrels per day. In EIA terms, this is pure gloom and doom, about as deeply pessimistic when it comes to the world's future oil output capacity as you're likely to get.

    The agency's experts claim, however, that this will not prove quite the challenge it might seem, because they have also revised downward their projections of future energy demand. Back in 2005, they were projecting world oil consumption in 2025 at 119.2 million barrels per day, just below anticipated output at that time. This year -- and we should all theoretically breathe a deep sigh of relief -- the report projects that 2025 figure at only 101.1 million barrels per day, conveniently just what the world is expected to produce at that time. If this actually proves the case, then oil prices will presumably remain within a manageable range.

    In fact, however, the consumption part of this equation seems like the less reliable calculation, especially if economic growth continues at anything like its recent pace in China and India. Indeed, all evidence suggests that growth in these countries will resume its pre-crisis pace by the end of 2009 or early 2010. Under those circumstances, global oil demand will eventually outpace supply, driving up prices again and threatening recurring and potentially disastrous economic disorders -- possibly on the scale of the present global economic meltdown.

    To have the slightest chance of averting such disasters means seeing a sharp rise in unconventional fuel output. Such fuels include Canadian oil sands, Venezuelan extra-heavy oil, deep-offshore oil, Arctic oil, shale oil, liquids derived from coal (coal-to-liquids or CTL), and biofuels. At present, these cumulatively constitute only about 4% of the world's liquid fuel supply but are expected to reach nearly 13% by 2030. All told, according to estimates in the new IEO report, unconventional liquid production will reach an estimated 13.4 million barrels per day in 2030, up from a projected 9.7 million barrels in the 2008 edition.

    But for an expansion on this scale to occur, whole new industries will have to be created to manufacture such fuels at a cost of several trillion dollars. This undertaking, in turn, is provoking a wide-ranging debate over the environmental consequences of producing such fuels.

    For example, any significant increase in biofuels use -- assuming such fuels were produced by chemical means rather than, as now, by cooking -- could substantially reduce emissions of carbon dioxide and other greenhouse gases, actually slowing the tempo of future climate change. On the other hand, any increase in the production of Canadian oil sands, Venezuelan extra-heavy oil, and Rocky Mountain shale oil will entail energy-intensive activities at staggering levels, sure to emit vast amounts of CO2, which might more than cancel out any gains from the biofuels.

    In addition, increased biofuels production risks the diversion of vast tracts of arable land from the crucial cultivation of basic food staples to the manufacture of transportation fuel. If, as is likely, oil prices continue to rise, expect it to be ever more attractive for farmers to grow more corn and other crops for eventual conversion to transportation fuels, which means rises in food costs that could price basics out of the range of the very poor, while stretching working families to the limit. As in May and June of 2008, when food riots spread across the planet in response to high food prices -- caused, in part, by the diversion of vast amounts of corn acreage to biofuel production -- this could well lead to mass unrest and mass starvation.

    A Heavy Energy Footprint on the Planet

    The geopolitical implications of this transformation could well be striking. Among other developments, the global clout of Canada, Venezuela, and Brazil -- all key producers of unconventional fuels -- is bound to be strengthened.

    Canada is becoming increasingly important as the world's leading producer of oil sands, or bitumen -- a thick, gooey, viscous material that must be dug out of the ground and treated in various energy-intensive ways before it can be converted into synthetic petroleum fuel (synfuel). According to the IEO report, oil sands production, now at 1.3 million barrels a day and barely profitable, could hit the 4.4 million barrel mark (or even, according to the most optimistic scenarios, 6.5 million barrels) by 2030.

    Given the IEA's new projections, this would represent an extraordinary addition to global energy supplies just when key sources of conventional oil in places like Mexico and the North Sea are expected to suffer severe declines. The extraction of oil sands, however, could prove a pollution disaster of the first order. For one thing, remarkable infusions of old-style energy are needed to extract this new energy, huge forest tracts would have to be cleared, and vast quantities of water used for the steam necessary to dislodge the buried goo (just as the equivalent of "peak water" may be arriving).

    What this means is that the accelerated production of oil sands is sure to be linked to environmental despoliation, pollution, and global warming. There is considerable doubt that Canadian officials and the general public will, in the end, be willing to pay the economic and environmental price involved. In other words, whatever the IEA may project now, no one can know whether synfuels will really be available in the necessary quantities 15 or 20 years down the road.

    Venezuela has long been an important source of crude oil for the United States, generating much of the revenue used by President Hugo Chávez to sustain his social experiments at home and an ambitious anti-American political agenda abroad. In the coming years, however, its production of conventional petroleum is expected to fall, leaving the country increasingly reliant on the exploitation of large deposits of bitumen in the eastern Orinoco River basin. Just to develop these "extra-heavy oil" deposits will require significant financial and energy investments and, as with Canadian oil sands, the environmental impact could be devastating. Nevertheless, successful development of these deposits could prove an economic bonanza for Venezuela.

    The big winner in these grim energy sweepstakes, however, is likely to be Brazil. Already a major producer of ethanol, it is expected to see a huge increase in unconventional oil output once its new ultra-deep fields in the "subsalt" Campos and Santos basins come on-line. These are massive offshore oil deposits buried beneath thick layers of salt some 100 miles off the coast of Rio de Janeiro and several miles beneath the ocean's surface.

    When the substantial technical challenges to exploiting these undersea fields are overcome, Brazil's output could soar by as much as three million barrels per day. By 2030, Brazil should be a major player in the world energy equation, having succeeded Venezuela as South America's leading petroleum producer.

    New Powers, New Problems

    The IEO report hints at other geopolitical changes occurring in the global energy landscape, especially an expected stunning increase in the share of the global energy supply consumed in Asia and a corresponding decline by the United States, Japan, and other "First World" powers. In 1990, the developing nations of Asia and the Middle East accounted for only 17% of world energy consumption; by 2030, that number, the report suggests, should reach 41%, matching that of the major First World powers.

    All recent editions of the report have predicted that China would eventually overtake the United States as number one energy consumer. What's notable is how quickly the 2009 edition expects that to happen. The 2006 report had China assuming the leadership position in a 2026-2030 timeframe; in 2007, it was 2021-2024; in 2008, it was 2016-2020. This year, the EIA is projecting that China will overtake the United States between 2010 and 2014.

    It's easy enough to overlook these shifting estimates, since the reports don't emphasize how they have changed from year to year. What they suggest, however, is that the United States will face ever fiercer competition from China in the global struggle to secure adequate supplies of energy to meet national needs.

    Given what we have learned about the dwindling prospects for adequate future oil supplies, we are sure to face increased geopolitical competition and strife between the two countries in those few areas that are capable of producing additional quantities of oil (and undoubtedly genuine desperation among many other countries with far less resources and power).

    And much else follows: As the world's leading energy consumer, Beijing will undoubtedly play a far more critical role in setting international energy policies and prices, undercutting the pivotal role long played by Washington. It is not hard to imagine, then, that major oil producers in the Middle East and Africa will see it as in their interest to deepen political and economic ties with China at the expense of the United States. China can also be expected to maintain close ties with oil providers like Iran and Sudan, no matter how this clashes with American foreign policy objectives.

    At first glance, the International Energy Outlook for 2009 hardly looks different from previous editions: a tedious compendium of tables and text on global energy trends. Looked at another way, however, it trumpets the headlines of the future -- and their news is not comforting.

    The global energy equation is changing rapidly, and with it is likely to come great power competition, economic peril, rising starvation, growing unrest, environmental disaster, and shrinking energy supplies, no matter what steps are taken. No doubt the 2010 edition of the report and those that follow will reveal far more, but the new trends in energy on the planet are already increasingly evident -- and unsettling.

    Michael T. Klare is a professor of peace and world security studies at Hampshire College in Amherst, Massachusetts, and the author, most recently, of Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt). A DVD of the documentary film based on his previous book, Blood and Oil, is available by clicking here.

Copyright 2009 Michael T. Klare

Tuesday, June 09, 2009

The Peak Oil Crisis: Watching a Mega-Crisis

Falls Church News-Press Online

By Tom Whipple

In the last few weeks there have been a number of developments that may provide an insight into the next few years - but first let's review.

We, in America, are deep in the midst of a four-sided crisis. The first side is an economic slump; second, surprisingly, is our government's panicky efforts to stabilize the situation; third, the imminent peaking of fossil fuels and numerous other resources that seems to be in abeyance for the moment; and fourth, global warming which in the long run could overshadow the other three by a wide margin and is attracting considerable amounts of government and Congressional attention.

The important point is that the four aspects of what could easily turn out to be the mega-crisis of the century are all interrelated. Developments in any of the four will cause perturbations for better or worse in the others.

Most believe our current economic problem was caused by the extension of too much credit, too freely, and to the wrong people, over the last 30-40 years. Some, however, are suspicious that the many-fold run-up in oil prices from their historic $10 or $20 a barrel that sopped up so much consumer purchasing power may have had more than a little to do with our current economic problems.

While the consequences of the economic downturn are well understood, we are just starting to appreciate that the massive governmental effort to keep a recession from turning into a depression is threatening unprecedented repercussions of its own. In the last 10 months, the U.S. government and its central bank have spent or issued guarantees approaching $12 trillion in efforts to boost the economy. During the current fiscal year, the US will sell $3.25 trillion in new securities vs. $892 billion worth last fiscal year. Some are already calling this phenomenon the "bailout bubble" and are worried that deficit financing on this scale could destroy the dollar and take much of the U.S. economy with it.

People who claim to understand such things continue to assure us that additional trillions in deficit financing will not be a problem and that anything is better than allowing our economy to slip into another great depression. Despite the government's best efforts, however, interest rates have begun to rise and last week took a rather substantial jump. This in turn could hamper a recovery in the housing market. The recent fall of the U.S. dollar is a companion signal that all is not well. Whether the falling dollar and the increase in interest rates will continue much longer is anybody's guess, but it won't take much more of a move before prospects for an early economic recovery are seriously harmed.

While many different natural resources - fossil fuels, minerals, fresh water - are in danger of running short within next few decades, oil production which probably has already passed its all-time peak looks like the best bet to interfere with, and eventually stymie, an economic recovery. Crude oil prices have doubled since the end of January and may go higher on expectations that an economic recovery is underway. While crude prices are still less than half the $147 a barrel they reached last July, it is getting close to the level where economic damage could be inflicted. While the demand for commercial fuels for trucks and jet planes is down, gasoline demand has not fallen much as prices have edged up.

While the interaction among the four major factors that will have much to do with our economic future - the recession, the bailout, peak oil, and global warming - is easy to understand, the timing and nature of all the possible interactions are difficult to comprehend. Oil supply and demand are relatively easy to track, but no one as yet seems to have a firm insight into whether, when, and how fast massive deficit spending is going to lead to serious trouble.

Any increase in demand from a revitalized economy is almost certain to drive oil prices higher. In the last eight months, OPEC has reduced its oil production by about three million b/d which has kept production closer to demand for the time being. Although a few members of OPEC currently have surplus production capacity that could be turned into increased production, every year we are extracting some 30 billion barrels of mostly easy and cheap-to-produce oil. The simple message is that in three to four years excess production capacity is likely to be eaten up by depletion. After that increased oil production will become very expensive and take considerable effort. Much higher prices and considerable economic damage are virtually certain.

To summarize our situation: If and when the U.S. and world economy rebounds significantly, the increased demand for oil will quickly lead to higher prices which in turn is likely to choke off the rebound; if the U.S. and world economy continues to contract, demand for oil and oil prices will fall for a while, but the economy will be approaching depression levels; if the massive deficit-financed bailouts lead to lack of interest in U.S. government securities and a weaker dollar, interest rates will soar and choke off economic growth; if the U.S. and other governments seriously clamp down on carbon emissions to control global warming, higher energy prices are likely. Our economy and future stand at a crossroad.

No one can claim to have much insight into the likelihood and timing of the many possible developments that could spring from our multi-sided crisis. The one thing we can be sure of, however, is that the four sides of our mega-crisis are inextricably connected. Any change, either for good or ill, sooner or later will cause changes in one or more of the others.
None of this bodes well for a return to life as we knew it only a few years ago.

Tuesday, June 02, 2009

We're in for a shock

Vaunted cap-and-trade bill does nothing about oil dependence

By Gal Luft

Now, when the first signs of economic recovery may be in sight, it's time to ponder what kind of recovery we are likely to witness. Will it be the traditional V-shaped recovery in which economic growth bounces back from a slump, or will it be a W-shaped, double-dipped one in which one crisis follows the other for several years to come? Much of this depends on the price of oil.

Nearly a year ago, oil prices hit their near $150 peak. This price shock, according to some economists, contributed materially to the recession that a few months later caused prices to collapse by nearly $100 a barrel. The global recession shrank demand for crude. But all of this is going to change once growth resumes, and the oil market is far from ready to absorb the resurgence in demand.

The International Energy Agency (IEA) recently concluded that even with the current recession, by 2030 global demand for oil could increase by 25 percent. The agency found that at expected rates of oilfield depletion, to meet future demand for oil, four new Saudi Arabias will have to be added to the global oil market between now and 2030. But the current economic conditions have thwarted the much-needed investment in new production. The IEA predicted that investment in oil and gas exploration will fall by 20 percent in 2009, and the Saudi oil minister is predicting a "catastrophic" shortfall in petroleum production.

For the U.S, such an oil shock would come at a terrible time as hundreds of billions of dollars of taxpayer-funded governmental stimulus and bailouts percolate into the economy, leading to inflationary pressure and devaluing the dollar. This would force OPEC members which conduct their oil transactions in dollars to keep prices high in order to ensure sufficient government revenues.

While the next oil crisis is staring us in the face, Congress prefers to lower its eyes. What seems to be the signature energy legislation of the 111th Congress, the American Clean Energy and Security Act, (also known as the Waxman-Markey cap and trade bill) does virtually nothing to shield the economy from the devastation the coming oil crisis would no doubt cause. The bill's renewable electricity mandate, which requires utilities to get 20 percent of their electricity from renewable sources by 2020, would discourage the use of coal and natural gas, but since only 2 percent of U.S. electricity is made from petroleum it will do nothing to address our oil dependence problem. The bill's "cash for clunkers" program may help drive stockpiles of unsold Detroit cars off the lots, but in terms of oil dependence it is equally meaningless.

Even the provisions to encourage deployment of electric and plug-in hybrids, while important and useful, will not affect our near-term energy security, at least until battery costs are significantly reduced.

Sadly, the one provision that could have made a difference, an Open Fuel Standard to ensure 50 percent of new cars are flexible-fueled - capable of running on any blend of alcohol and gasoline - was watered down to meaninglessness by the House Energy and Commerce Committee. Such a standard, which adds less than $100 to the cost of a new car, could have enabled consumers to choose a fuel alternative at the pump if and when gasoline prices rise to $5 a gallon.

Devoid of any provision that could help strip oil of the strategic status derived from its virtual monopoly over transportation fuel, the Waxman-Markey bill is sowing the seeds for the next oil shock.

A better course would include not only an Open Fuel Standard but the removal of trade barriers affecting alternative fuels, such as the 54-cent tariff on imported ethanol. With a significant portion of our fleet capable of running on alternative liquid fuels and with free trade in alternative fuels allowing scores of developing countries to export billions of gallons of sugarcane ethanol to the U.S., we could withstand the next oil crisis with relatively little pain.

Congress and the Obama administration should ensure that any energy bill includes provisions that address not only the long-term implications of greenhouse gas emissions but the much nearer adversity coming to a gas station near you.

Gal Luft is executive director of the Institute for the Analysis of Global Security in Potomac. His e-mail is