Peak Oil News: Ignoring the Elephant in the Room

Thursday, May 08, 2008

Ignoring the Elephant in the Room

Association for the Study of Peak Oil & Gas - USA

By Dave Cohen

1st soldier: Who goes there?
King Arthur: I am Arthur, son of Uther Pendragon, and this is my trusty servant Patsy. We have ridden the length and breadth of the land in search of knights who will join me in my court at Camelot. I must speak with your lord and master.
1st soldier: What? Ridden on a horse?
King Arthur: Yes!
1st soldier: You're using coconuts!
King Arthur: What?
1st soldier: You've got two empty halves of coconut and you're bangin' 'em together.
— Monty Python and the Holy Grail

The disconnect between peak oil concerns and the presidential race is almost total. As prices at the pump rise, each candidate is now talking about their so-called solutions to the problem. Despite clear new warning signs from Russia, Saudi Arabia, Mexico, and Nigeria that peak oil is nigh, the candidates remain unwaveringly oblivious to the true causes of rising fuel prices, preferring instead to dwell on irrelevant—actually, counterproductive—measures like suspending the federal gas tax during the summer months or taxing Big Oil. This is akin to putting a band-aid on a melanoma.

Our nation's capital is a self-reinforcing bastion of ignorance about the longer term oil supply issues, Roscoe Bartlett (R, Md) and a few others excepted. The candidates and their energy advisers are full-fledged members of the "Washington Insiders" club, a group that only talks to each other and gets all of its information from inside the Beltway or pollsters. A brief example suffices to demonstrate the problem. Everybody in our nation's capital reads the Washington Post. If you want to "know" what's going on, it's in the Post. Here are the results of a Google advanced search survey of references to the exact phrase "peak oil" in four newspapers.

Newspaper Hits
Wall Street Journal: 3820
New York Times: 1970
Houston Chronicle: 617
Washington Post: 389

The Wall Street Journal has about 10 times more allusions to "peak oil" than the Post does. Bear in mind that this informal survey includes comments by readers, guest editorials, and assorted other references that are not part of the newspaper's reporting. You will be hard-pressed to find a news article in the Washington Post that uses the term "peak oil." Earth to the Post's Editors, this is Earth calling—"peak oil" is a growing concern outside the Beltway, so it's time to get with the program.

Examining the "oil dependency" positions of the candidates' energy advisers gives us little hope our newly elected government will meet the peak oil challenges head-on in 2009.

Meet the Energy Advisers

Left to right, meet Jason Grumet (Obama), James Woolsey (McCain) and Todd Stern (Clinton). Environment & Energy Publishing TV (E&ETV) presents a video of their presentation to the Society of Environmental Journalists in Washington, D.C on April 11, 2008. The "advisers to the White House candidates discuss their positions on energy, climate and the environment."

What the advisers don't say is just as interesting as what they do say (transcript). Everyone favors a cap & trade policy for carbon emissions, a measure which doesn't affect our liquid fuels dilemma at all. Todd Stern (Clinton) did not even mention oil in his initial remarks, dwelling on climate instead. This passage is typical—

And [there] is quite a constant drumbeat of evidence, which you are all are very well aware of, the loss of sea ice in the Arctic, that huge chunk of ice that dropped off of the Antarctic a few weeks ago, the increase in the intensity of hurricanes, droughts, historic droughts in the Southeast and Southwest and other places in the world, etc.

So, [global warming] is obviously a huge environmental problem, but it's far beyond that. This is a problem that's also going to be a first-order national security issue. It's going to exacerbate food security problems. It's going to exacerbate water scarcity. It's going to make desertification worse, increase resource competition, and produce, undoubtedly, large-scale migration and refugee problems and increase border tension. [emphasis added]

Fao_food_price_indexClimate change will certainly have destructive long term effects, but Stern seems unaware that rising world oil prices, along with the competition with food posed by biofuels, is creating exorbitant cost premiums on food all over the world now (graph left). Not 15 or 20 or 30 years down the road—now. People who had climbed out of abject poverty are now starving or malnourished.

The current food security problems are largely a consequence of oil market fundamentals and misguided attempts to alleviate the supply-side crunch with "green" fuels, not global warming. The drought in Australia has also played a role in world-wide grain shortages, but does not affect palm oil or other highly priced food commodities.

The problems attending American vulnerability to oil price shocks get little attention throughout the E&ETV discussion, especially among the advisers to the Democrats. Only Grumet and Woolsey call out our "oil dependence" as a problem, and only Woolsey briefly discusses specific measures (plug-ins, flex-fuel vehicles, alternative fuels) to remedy the situation. Climate change is viewed as the paramount concern, even in the near term. Peak oil is completely off the radar. This is the "Washington Insider" consensus view, to which we now turn.

NCEP and Oil Shockwave

Obama's adviser Jason Grumet serves as executive director of Washington's influential National Commission on Energy Policy (NCEP). The commission's December, 2004 report Ending the Energy Stalemate tells us a lot about what the candidates' advisers are thinking about U.S. oil security. McCain's adviser James Woolsey also serves as one of the NCEP commissioners.

The principal NCEP report co-chair was John Holdren, who has served as president of the AAAS among other prestigious positions. Dr. Holdren's position on peak oil is therefore of considerable interest to us here in so far as it appears to have influenced the views of the presidential candidates' energy advisers. That view is laid out in his 2007 AAAS Presidential Address Science and Technology for Sustainable Well-Being (Science, January 25, 2008, Vol. 319). Holdren's entire text on the subject is worth quoting, but you can find a shorter version in a slide presentation here.

Much discussion of the oil issue has been framed around the contentious question of “peak oil” (49): When will global production of conventional petroleum reach a peak and begin to decline, as U.S. domestic production did around 1970? The question derives its importance from the proposition that reaching this peak globally will presage large and long-lasting increases in the price of oil, plus a costly and demanding scramble for alternatives to fill the widening gap between the demand for liquid fuel and the supply of conventional petroleum.

Oil-supply pessimists argue that the peak of conventional oil production could occur any time now; oil-supply optimists say it probably won’t happen until after 2030, perhaps not until after 2050. Similar arguments go on about conventional supplies of natural gas, the total recoverable resources of which are thought to be not greatly different, in terms of energy content, from those of crude petroleum.

In my judgment, it’s difficult to tell at this juncture whether the optimists or the pessimists are closer to right about when the world will experience peak oil, but the answer is not very important as a determinant of what we need to be doing. After all, it’s clear that heavy oil dependence carries substantial economic and political risks in a world where high proportions of the reserves and remaining recoverable resources lie in regions that are unstable and/or controlled by authoritarian governments that have sometimes been inclined to wield oil supply as a weapon. It’s also clear that world oil use (which is dominated by the transport sector and, within it, by motor vehicles) is a huge producer of conventional air pollutants, as well as being about equal to coal burning as a contributor to the global buildup of the heat-trapping gas CO2 (29, 42). Given these liabilities, it makes sense to be looking urgently for ways to reduce oil dependence (while working to clean up continuing uses of oil), no matter when we think peak oil might occur under business as usual. [Emphasis added, reference 42 is to the IEA]

Holdren thinks peak oil is "not very important" in so far as we need to cut our oil dependence in any case because of 1) global warming and 2) supply-side security risks. Although Grumet, Woolsey and Stern never mention peak oil, their position is exactly the same—peak oil concerns are overridden by the environmental (climate) problem and geopolitical risks to the oil supply. This defines the mainstream "inside the Beltway" view as laid out, for example, in Joseph Romm's Peak oil? Consider It Solved (Salon, March 3, 2008, and to which I replied here). Romm served as Principal Deputy Assistant Secretary in the DOE from 1995-1998 during the Clinton administration and is now a Senior Fellow with the Center for American Progress, a Washington think tank.

This "climate first, peak oil not" view dominates mainstream thinking in Washington, but neither Dr. Holdren, Dr. Romm or the presidential advisers seems to appreciate the importance of the timing of the peak. It is a question of urgency. To put this in perspective, let's review the results of Oil Shockwave, a simulation run by the NCEP and SAFE in 2005. Obama adviser Jason Grumet was interviewed by Mary O'Driscoll of E&ETV on June 30, 2005. James Woolsey was also a participant in the shockwave simulation. Again, we must quote the transcript at length. Be patient, this is definitely worth reading.

Jason Grumet: ... and Mary I should say that the National Commission on Energy Policy partnered with Securing America's Future Energy, a new group called SAFE, slick new operation in town [in Washington carry out Oil Shockwave ]

Mary O'Driscoll: There you go...

Jason Grumet: We were intent, Mary, on not having kind of a Robert Ludlow dirty bomb, you know, airplanes into cooling towers. I mean what we looked at was a number of very, unfortunate, but very realistic events. Some civil unrest in Nigeria, unfortunately life is imitating art. I mean we're seeing that now reported in newspapers, coupled with some low-tech terrorism. We looked at al Qaeda hijacking a tanker and crashing it into the Port of Valdez and at a major explosion at a natural gas facility in Saudi Arabia, which would have taken natural gas off the market requiring them to use crude oil to replace their own domestic energy. And then some terrorism that just caused a real anxiety among the oil producers in Saudi Arabia. You put all that together, you take 3-and-a-half million barrels off the market and let me read to you from my cheat sheet of doom; gasoline prices at $5.74 a gallon, global oil price at $161 a barrel, a recession, two consecutive quarters of a drop in GDP, a drop in consumer confidence by 30 percent, inflation 12.6 percent, a 28 percent decline in the S&P 500, as well as I think some very realistic foreign policy concerns... [and later down the discussion]

Mary O'Driscoll: Well then what do we do in the short term? I mean as you said, the energy bill, and we'll talk about that in just a second, I would like to touch on that in a moment, but I mean in the short term, what do we do?

Jason Grumet: We eat it. I mean this is the reality that I think we were hoping to reveal. You know when the national commission put out its report last December the number one priority issue that we addressed was the need to deal with domestic oil security. I think that we have -- the SPRO is a significant buffer. It's very good news that our economy uses about half as much oil to produce the same GDP now as we did before the first oil embargo. So we are in a better position in some regards than we were before, but we use 25 percent of the world's oil. We possess 3 percent of the world's reserves and we are fundamentally now in a system that is stretched so thin ... now if it wasn't civil unrest in Nigeria it could've been a labor strike in Venezuela. I mean these are very real risks and the answer is prices go up.

Mary O'Driscoll: Right.

Jason Grumet: And we probably wind up using our SUVs a little bit less and saying to ourselves, why hadn't government done something to protect us from this?

Mary O'Driscoll: But I mean you're talking about a recession kind of situation, so I mean will we even be able to drive our SUVs at that time? I mean it's a little unnerving I must say.

Jason Grumet: I did see, I saw the Mad Max movie over the weekend and it kind of prepared me for the realities of $160 a barrel oil.

Mary O'Driscoll: Oh boy!

Jason Grumet: These are career-ending prices for many people in this town [Washington] and I think that, our hope is that collectively the Congress and the administration will start to see that not only do we have to work on these issues as matters of national energy policy, that these are issues of national security, economic strength and our foreign policy prerogative.

As I write this, only $38.80 per barrel separates us from the return of the Road Warrior price-wise. Oil Shockwave simulated the effects of suddenly withdrawing 3.5 million barrels per day (mmb/d) from the world market, and found that this would result in "gasoline prices at $5.74 a gallon, global oil price at $161 a barrel, a recession, two consecutive quarters of a drop in GDP, a drop in consumer confidence by 30 percent, inflation 12.6 percent, a 28 percent decline in the S&P 500." Something else happened instead.

At the end of 2004, the EIA data indicates that world oil production (crude + condensate + gas liquids) stood at 79.905 mmb/d. If we assume only 1% annual growth, which is below the historical average since 1983, the average daily oil supply for 2007 should have been 82.326 mmb/d. What was it? Supply stood at 81.190 mmb/d, a shortfall of 1.136 million barrels with respect to the modest 1% growth target. Most of the "growth" that did occur was in gas liquids, which are not used as a transportation fuel. This has not been a sudden oil shock, but rather forms part of a gradual ongoing oil crunch that some of us call "peak oil."

One can not say that Jason Grumet (Obama) or James Woolsey (McCain) are completely uninformed about oil shocks, but they appear to be very badly informed about the ever-accelerating peak oil squeeze. These Washington insiders don't seem to get it, but most Americans are already on the receiving end of our point. The oil price is $122.20/barrel at this moment. Maybe this should be a seen as a "career-ending price for many people in Washington."

A Solution that Doesn't Make Sense

"To enhance the nation’s energy security and reduce its vulnerability to oil supply disruptions and price shocks, the [NCEP] Commission recommends"—

• Increasing and diversifying world oil production while expanding the global network of strategic petroleum reserves.

• Significantly raising federal fuel economy standards for cars and light trucks while reforming the 30-year-old Corporate Average Fuel Economy (CAFE) program to allow more flexibility and reduce compliance costs. New standards should be phased in over a five-year period beginning no later than 2010.

• Providing $3 billion over ten years in manufacturer and consumer incentives to encourage domestic production and boost sales of efficient hybrid and advanced diesel vehicles.

"Increasing and diversifying world oil production" obviously did not happen, and it's unlikely to happen ever again. New CAFE standards were enacted in the Energy Independence and Security Act (HR. 6) signed into law in December, 2007, but are phased in by 2020. The NCEP report also advocated ramping up alternative fuels like ethanol to "help to diminish U.S. vulnerability to high oil prices and oil supply disruptions while reducing the transportation sector’s greenhouse gas emissions."

The energy plans of Hillary Clinton and Barack Obama generally follow the NEPC guidelines. For example—

Hillary’s plan to cut oil imports by two-thirds—or more than 10 million barrels per day—by 2030 centers on setting tough new fuel efficiency standards for cars and trucks and providing retooling assistance to the automakers to help them meet these standards. Her plan also reduces oil demand by increasing biofuels production and improving the efficiency of industrial oil use. [emphasis added]

Clinton's plan is almost identical to that found in the NCEP report, but contains a greater emphasis on ethanol, which became politically popular after that report was written due to rising oil prices after 2004. The latest energy bill H.R. 6 mandates 36 billion gallons of ethanol by 2022.

A critique of the weak (CAFE standards) or unrealistic (ethanol) measures H.R. 6 contains can be found in my ASPO-USA articles False Hopes for Cellulose (January 23, 2008) and The Sierra Club Solution (January 30, 2008). These steps provide too little help coming too late, an observation which becomes more and more obvious when we consider that a global food crisis is happening now, and the price of oil has soared above $120/barrel.

The Invisible Elephant in the Room

Mitigating anthropogenic climate change is the imperative driving the policies of all the presidential candidates, so their primary energy initiative is a carbon emissions cap & trade system. Problems arising from our oil dependency take a backseat—these are not perceived as urgent and thus can be solved gradually. This approach to our "oil dependency" only makes sense from a climate perspective, which requires us to change our energy consumption and infrastructure over several decades.

The soaring oil price and its underlying causes are the invisible elephant in the room in the presidential race. While many of the candidates' proposals can be chalked up to pandering in an election year, there is no evidence that I can find that any of the candidates gets this "peak oil" problem. For example, Robert Hirsch and Roger Bezdek briefed two low level Clinton staffers on the dangers of a dwindling oil supply. No evidence supports the idea that this briefing has had the slightest effect on thinking in the Clinton campaign.

We are all being sold down the river in this year's election. As the first DOE secretary James Schlesinger said, "We have only two modes—complacency and panic." Complacency rules, and panic awaits. I don't know who the next president will be, but I can foresee that anxious day when our leader-to-be (or Jason Grumet?) exclaims "Oh, no! Oil is $161/barrel! The economy is falling apart! What do we do now?" Don't say we didn't warn you.

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At 4:03 AM, May 09, 2008, Anonymous Anonymous said...

Well,... Kucinich did get it. Too bad he's not even a candidate anymore.

At 6:07 AM, May 11, 2008, Blogger Martin Meenagh said...

I am so glad that people are alive to the peak oil issue. The more blogs like this the better! Many thanks for maintaining it, I'll link to it and tell everyone I know to do so too!

At 10:08 PM, May 16, 2008, Anonymous Anonymous said...

No doubt peak oil is an important concept. The American public and our elected leaders are going to have to get familiar with this concept if we are to make any headway on oil and general energy issues.

We have to go to work immediately in reducing our dependence on foreign oil - it will require BOTH an increase in domestic supply and decreases in domestic consumpiton. Decreases in domestic consumption to be achived in a variety of ways - but most noteably immediate investment in alternative and renewable energy souces.

At 12:20 PM, June 30, 2008, Blogger bavarian said...

Planning ahead is a great way for America's to recover from the falling dollar but also get a good idea of where energy is going to come from in the future. Peak oil is changing in today's markets once people realize that its going to happen anyone can make a profit. Companies that are at the top of oil will most likely not be there when oil is no longer a main source of energy. Something new is going to come in and take its place...its just a question of what.


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