OT: Preparing for Life After Oil

[Guest guest]

Preparing for Life After Oil

By _Michael T. Klare_ (http://www.alternet.org/authors/3454/) , _The Nation_

(http://www.thenation.com/) . Posted _November 8, 2007_

(http://www.alternet.org/ts/archives/?date[F]=11 & date[Y]=2007 & date[d]=08 & act=Go/\

) .

_http://www.alternet.org/story/66625/_ (http://www.alternet.org/story/66625/)

 

Welcome to the Age of Insuffiency: As oil prices hit new highs and supplies

sink, our way of life will drastically change.

 

This past May, in an unheralded and almost unnoticed move, the Energy

Department signaled a fundamental, near epochal shift in US and indeed world

history: we are nearing the end of the Petroleum Age and have entered the Age

of

Insufficiency. The department stopped talking about " oil " in its projections of

future petroleum availability and began speaking of " liquids. " The global

output of " liquids, " the department indicated, would rise from 84 million

barrels of oil equivalent (mboe) per day in 2005 to a projected 117.7 mboe in

2030

-- barely enough to satisfy anticipated world demand of 117.6 mboe. Aside

from suggesting the degree to which oil companies have ceased being mere

suppliers of petroleum and are now purveyors of a wide variety of liquid

products

-- including synthetic fuels derived from natural gas, corn, coal and other

substances -- this change hints at something more fundamental: we have entered

a new era of intensified energy competition and growing reliance on the use

of force to protect overseas sources of petroleum.

 

To appreciate the nature of the change, it is useful to probe a bit deeper

into the Energy Department's curious terminology. " Liquids, " the department

explains in its International Energy Outlook for 2007, encompasses

" conventional " petroleum as well as " unconventional " liquids -- notably tar

sands

(bitumen), oil shale, biofuels, coal-to-liquids and gas-to-liquids. Once a

relatively insignificant component of the energy business, these fuels have come

to

assume much greater importance as the output of conventional petroleum has

faltered. Indeed, the Energy Department projects that unconventional liquids

production will jump from a mere 2.4 mboe per day in 2005 to 10.5 in 2030, a

fourfold increase. But the real story is not the impressive growth in

unconventional fuels but the stagnation in conventional oil output. Looked at

from this

perspective, it is hard to escape the conclusion that the switch from " oil "

to " liquids " in the department's terminology is a not so subtle attempt to

disguise the fact that worldwide oil production is at or near its peak capacity

and that we can soon expect a downturn in the global availability of

conventional petroleum.

 

Petroleum is, of course, a finite substance, and geologists have long warned

of its ultimate disappearance. The extraction of oil, like that of other

nonrenewable resources, will follow a parabolic curve over time. Production

rises quickly at first and then gradually slows until approximately half the

original supply has been exhausted; at that point, a peak in sustainable output

is attained and production begins an irreversible decline until it becomes too

expensive to lift what little remains. Most oil geologists believe we have

already reached the midway point in the depletion of the world's original

petroleum inheritance and so are nearing a peak in global output; the only real

debate is over how close we have come to that point, with some experts

claiming we are at the peak now and others saying it is still a few years or

maybe a

decade away.

 

Until very recently, Energy Department analysts were firmly in the camp of

those wild-eyed optimists who claimed that peak oil was so far in the future

that we didn't really need to give it much thought. Putting aside the science

of the matter, the promulgation of such a rose-colored view obviated any need

to advocate improvements in automobile fuel efficiency or to accelerate

progress on the development of alternative fuels. Given White House priorities,

it is hardly surprising that this view prevailed in Washington.

 

In just the past six months, however, the signs of an imminent peak in

conventional oil production have become impossible even for conservative

industry

analysts to ignore. These have come from the take-no-prisoners world of oil

pricing and deal-making, on the one hand, and the analysis of international

energy experts, on the other.

 

Most dramatic, perhaps, has been the spectacular rise in oil prices. The

price of light, sweet crude crossed the longstanding psychological barrier of

$80 per barrel on the New York Mercantile Exchange for the first time in

September, and has since risen to as high as $90. Many reasons have been cited

for

the rise in crude prices, including unrest in Nigeria's oil-producing Delta

region, pipeline sabotage in Mexico, increased hurricane activity in the Gulf

of Mexico and fears of Turkish attacks on Kurdish guerrilla sanctuaries in

Iraq. But the underlying reality is that most oil-producing countries are

pumping at maximum capacity and finding it increasingly difficult to boost

production in the face of rising international demand.

 

Even a decision by the Organization of the Petroleum Exporting Countries

(OPEC) to boost production by 500,000 barrels per day failed to halt the upward

momentum in prices. Concerned that an excessive rise in oil costs would

trigger a worldwide recession and lower demand for their products, the OPEC

countries agreed to increase their combined output at a meeting in Vienna on

September 11. " We think that the market is a little bit high, " explained

Kuwait's

acting oil minister, Mohammad al-Olaim. But the move did little to slow the

rise in prices. Clearly, OPEC would have to undertake a much larger production

increase to alter the market environment, and it is not at all clear that its

members possess the capacity to do that -- now or in the future.

 

A warning sign of another sort was provided by Kazakhstan's August decision

to suspend development of the giant Kashagan oil region in its sector of the

Caspian Sea, first initiated by a consortium of Western firms in the late

'90s. Kashagan was said to be the most promising oil project since the

discovery

of oil in Alaska's Prudhoe Bay in the late '60s. But the enterprise has

encountered enormous technical problems and has yet to produce a barrel of oil.

Frustrated by a failure to see any economic benefits from the project, the

Kazakh government has cited environmental risks and cost overruns to justify

suspending operations and demanding a greater say in the project.

 

Like the dramatic rise in oil prices, the Kashagan episode is an indication

of the oil industry's growing difficulties in its efforts to boost production

in the face of rising demand. " All the oil companies are struggling to grow

production, " Peter Hitchens of Teather & Greenwood brokerage told the Wall

Street Journal in July. " It's becoming more and more difficult to bring

projects in on time and on budget. "

 

That this industry debilitation is not a temporary problem but symptomatic

of a long-term trend was confirmed in two important studies published this

past summer by conservative industry organizations.

 

The first of these was released July 9 by the International Energy Agency

(IEA), an affiliate of the Organization for Economic Cooperation and

Development, the club of major industrial powers. Titled Medium-Term Oil Market

Report, it is a blunt assessment of the global supply-and-demand equation over

the 2007-12 period. The news is not good.

 

Predicting that world economic activity will grow by an average of 4.5

percent per year during this period -- much of it driven by unbridled growth in

China, India and the Middle East -- the report concludes that global oil demand

will rise by 2.2 percent per year, pushing world oil consumption from

approximately 86 million barrels per day in 2007 to 96 million in 2012. With

luck

and massive new investment, the oil industry will be able to increase output

sufficiently to satisfy the higher level of demand anticipated for 2012 --

barely. Beyond that, however, there appears little likelihood that the industry

will be able to sustain any increase in demand. " Oil look extremely tight

in five years' time, " the agency declared.

Underlying the report's general conclusion are a number of specific

concerns. Most notably, it points to a worrisome decline in the yield of older

fields

in non-OPEC countries and a corresponding need for increased output from the

OPEC countries, most of which are located in conflict-prone areas of the

Middle East and Africa. The numbers involved are staggering. At first blush, it

would seem that the need for an extra 10 million barrels per day between now

and 2012 would translate into an added 2 million barrels per day in each of

the next five years -- a conceivably attainable goal. But that doesn't take

into account the decline of older fields. According to the report, the world

actually needs an extra 5 million: 3 million to make up for the decline in

older fields plus the 2 million in added requirements. This is a daunting and

possibly insurmountable challenge, especially when one considers that almost all

of the additional petroleum will have to come from Iran, Iraq, Kuwait, Saudi

Arabia, Algeria, Angola, Libya, Nigeria, Sudan, Kazakhstan and Venezuela --

countries that do not inspire the sort of investor confidence that will be

needed to pour hundreds of billions of dollars into new drilling rigs, pipelines

and other essential infrastructure.

Similar causes for anxiety can be found in the second major study released

last summer, Facing the Hard Truths About Energy, prepared by the National

Petroleum Council, a major industry organization. Because it supposedly

provided

a " balanced " view of the nation's energy dilemma, the NPC report was widely

praised on Capitol Hill and in the media; adding to its luster was the

identity of its chief author, former ExxonMobil CEO Lee Raymond.

Like the IEA report, the NPC study starts with the claim that, with the

right mix of policies and higher investment, the industry is capable of

satisfying US and international oil and natural gas demand. " Fortunately, the

world is

not running out of energy resources, " the report bravely asserts. But

obstacles to the development and delivery of these resources abound, so prudent

policies and practices are urgently required. Although " there is no single, easy

solution to the multiple challenges we face, " the authors conclude, they are

" confident that the prompt adoption of these strategies " will allow the

United States to satisfy its long-term energy needs.

Read further into the report, however, and serious doubts emerge. Here

again, worries arise from the growing difficulties of extracting oil and gas

from

less-favorable locations and the geopolitical risks associated with increased

reliance on unfriendly and unstable suppliers. According to the NPC (using

data acquired from the IEA), an estimated $20 trillion in new infrastructure

will be needed over the next twenty-five years to ensure that sufficient

energy is available to satisfy anticipated worldwide demand.

The report then states the obvious: " A stable and attractive investment

climate will be necessary to attract adequate capital for evolution and

expansion

of the energy infrastructure. " This is where any astute observer should

begin to get truly alarmed, for, as the study notes, no such climate can be

expected. As the center of gravity of world oil production shifts decisively to

OPEC suppliers and state-centric energy producers like Russia, geopolitical

rather than market factors will come to dominate the marketplace.

" These shifts pose profound implications for U.S. interests, strategies, and

policy-making, " the NPC report states. " Many of the expected changes could

heighten risks to U.S. energy security in a world where U.S. influence is

likely to decline as economic power shifts to other nations. In years to come,

security threats to the world's main sources of oil and natural gas may

worsen. "

The implications are obvious: major investors are not likely to cough up the

trillions of dollars needed to substantially boost production in the years

ahead, suggesting that the global output of conventional petroleum will not

reach the elevated levels predicted by the Energy Department but will soon

begin an irreversible decline.

This conclusion leads to two obvious strategic impulses: first, the

government will seek to ease the qualms of major energy investors by promising

to

protect their overseas investments through the deployment of American military

forces; and second, the industry will seek to hedge its bets by shifting an

ever-increasing share of its investment funds into the development of

nonpetroleum liquids.

The New 'Washington Consensus'

The need for a vigorous US military role in protecting energy assets abroad

has been a major theme in American foreign policy since 1945, when President

Roosevelt met with King Abdul Aziz of Saudi Arabia and promised to protect

the kingdom in return for privileged access to Saudi oil.

In the most famous expression of this linkage, President Carter affirmed in

January 1980 that the unimpeded flow of Persian Gulf oil is among this

country's vital interests and that to protect this interest, the United States

will

employ " any means necessary, including military force. " This principle was

later cited by President Reagan as the rationale for " reflagging " Kuwaiti oil

tankers with the American ensign during the Iran-Iraq War of 1980-88 and

protecting them with US warships -- a stance that led to sporadic clashes with

Iran. The same principle was subsequently invoked by George H.W. Bush as a

justification for the Gulf War of 1991.

In considering these past events, it is important to recognize that the use

of military force to protect the flow of imported petroleum has generally

enjoyed broad bipartisan support in Washington. Initially, this bipartisan

outlook was largely focused on the Persian Gulf area, but since 1990, it has

been

extended to other areas as well. President Clinton eagerly pursued close

military ties with the Caspian Sea oil states of Azerbaijan and Kazakhstan

after

the breakup of the USSR in 1991, while George W. Bush has avidly sought an

increased US military presence in Africa's oil-producing regions, going so far

as to favor the establishment of a US Africa Command (Africom) in February.

One might imagine that the current debacle in Iraq would shake this

consensus, but there is no evidence that this is so. In fact, the opposite

appears to

be the case: possibly fearful that the chaos in Iraq will spread to other

countries in the Gulf region, senior figures in both parties are calling for a

reinvigorated US military role in the protection of foreign energy

deliveries.

Perhaps the most explicit expression of this elite consensus is an

independent task force report, National Security Consequences of U.S. Oil

Dependency,

backed by many prominent Democrats and Republicans. It was released by the

bipartisan Council on Foreign Relations (CFR), co-chaired by John Deutch,

deputy secretary of defense in the Clinton Administration, and James

Schlesinger,

defense secretary in the Nixon and Ford administrations, in October 2006. The

report warns of mounting perils to the safe flow of foreign oil. Concluding

that the United States alone has the capacity to protect the global oil trade

against the threat of violent obstruction, it argues the need for a strong

US military presence in key producing areas and in the sea lanes that carry

foreign oil to American shores.

An awareness of this new " Washington consensus " on the need to protect

overseas oil supplies with American troops helps explain many recent

developments

in Washington. Most significant, it illuminates the strategic stance adopted

by President Bush in justifying his determination to retain a potent US force

in Iraq -- and why the Democrats have found it so difficult to contest that

stance.

Consider Bush's September 13 prime-time speech on Iraq. " If we were to be

driven out of Iraq, " he prophesied, " extremists of all strains would be

emboldened.... Iran would benefit from the chaos and would be encouraged in its

efforts to gain nuclear weapons and dominate the region. Extremists could

control

a key part of the global energy supply. " And then came the kicker: " Whatever

political party you belong to, whatever your position on Iraq, we should be

able to agree that America has a vital interest in preventing chaos and

providing hope in the Middle East. " In other words, Iraq is no longer about

democracy or WMDs or terrorism but about maintaining regional stability to

ensure

the safe flow of petroleum and keep the American economy on an even keel; it

was almost as if he was speaking to the bipartisan crowd that backed the CFR

report cited above.

It is very clear that the Democrats, or at least mainstream Democrats, are

finding it exceedingly difficult to contest this argument head-on. In March,

for example, Senator Hillary Clinton told the New York Times that Iraq is

" right in the heart of the oil region " and so " it is directly in opposition to

our interests " for it to become a failed state or a pawn of Iran. This means,

she continued, that it will be necessary to keep some US troops in Iraq

indefinitely, to provide logistical and training support to the Iraqi military.

Senator Barack Obama has also spoken of the need to maintain a robust US

military presence in Iraq and the surrounding area. Thus, while calling for the

withdrawal of most US combat brigades from Iraq proper, he has championed an

" over-the-horizon force that could prevent chaos in the wider region. "

Given this perspective, it is very hard for mainstream Democrats to

challenge Bush when he says that an " enduring " US military presence is needed

in Iraq

or to change the Administration's current policy, barring a major military

setback or some other unforeseen event. By the same token, it will be hard for

the Democrats to avert a US attack on Iran if this can be portrayed as a

necessary move to prevent Tehran from threatening the long-term safety of

Persian Gulf oil supplies.

Nor can we anticipate a dramatic change in US policy in the Gulf region from

the next administration, whether Democratic or Republican. If anything, we

should expect an increase in the use of military force to protect the overseas

flow of oil, as the threat level rises along with the need for new

investment to avert even further reductions in global supplies.

The Rush to Alternative Liquids

Although determined to keep expanding the supply of conventional petroleum

for as long as possible, government and industry officials are aware that at

some point these efforts will prove increasingly ineffective. They also know

that public pressure to reduce carbon dioxide emissions -- thus slowing the

accumulation of climate-changing greenhouse gases -- and to avoid exposure to

conflict in the Middle East is sure to increase in the years ahead.

Accordingly, they are placing greater emphasis on the development of oil

alternatives

that can be procured at home or in neighboring Canada.

The new emphasis was first given national attention in Bush's latest State

of the Union address. Stressing energy independence and the need to modernize

fuel economy standards, he announced an ambitious plan to increase domestic

production of ethanol and other biofuels. The Administration appears to favor

several types of petroleum alternatives: ethanol derived from corn stover,

switch grass and other nonfood crops

(cellulosic ethanol); diesel derived largely from soybeans (biodiesel); and

liquids derived from coal (coal-to-liquids), natural gas (gas-to-liquids) and

oil shale. All of these methods are being tested in university laboratories

and small-scale facilities, and will be applied in larger, commercial-sized

ventures in coming years with support from various government agencies.

In February, for example, the Energy Department announced grants totaling

$385 million for the construction of six pilot plants to manufacture cellulosic

ethanol; when completed in 2012, these " biorefineries " will produce more

than 130 million gallons of cellulosic ethanol per year. (The United States

already produces large quantities of ethanol by cooking and fermenting corn

kernels, a process that consumes vast amounts of energy and squanders a

valuable

food crop while supplanting only a small share of our petroleum usage; the

proposed cellulosic plants would use nonfood biomass as a feedstock and consume

far less energy.)

Just as eager to develop petroleum alternatives are the large energy

companies, all of which have set up laboratories or divisions to explore future

energy options. BP has been especially aggressive; in 2005 it established BP

Alternative Energy and set aside $8 billion for this purpose. This past

February

the new spinoff announced a $500 million grant -- possibly the largest of its

kind in history -- to the University of California, Berkeley, the University

of Illinois and Lawrence Berkeley National Laboratory to establish an Energy

Biosciences Institute with the aim of developing biofuels. BP said the

institute " is expected to explore the application of bioscience [to] the

production of new and cleaner energy, principally fuels for road transport. "

Just about every large oil company is placing a heavy bet on Canadian tar

sands -- a gooey substance found in Canada's Alberta province that can be

converted into synthetic petroleum -- but only with enormous effort and

expense.

According to the Energy Department, Canadian bitumen production will rise from

1.1 mboe in 2005 to 3.6 mboe in 2030, an increase that is largely expected

to be routed to the United States. Hoping to cash in on this bonanza, giant US

corporations like Chevron are racing to buy up leases in the bitumen fields

of northern Alberta.

But while attractive from a geopolitical perspective, extracting Canadian

tar sands is environmentally destructive. It takes vast quantities of energy to

recover the bitumen and convert it into a usable liquid, releasing three

times as much greenhouse gases as conventional oil production; the resulting

process leaves toxic water supplies and empty moonscapes in its wake. Although

rarely covered in the US press, opposition in Canada to the environmental

damage wreaked by these mammoth operations is growing.

Environmental factors loom large in yet another potential source of liquids

being pursued by US energy firms, with strong government support: shale oil,

or petroleum liquids pried from immature rock found in the Green River basin

of western Colorado, eastern Utah and southern Wyoming. Government geologists

claim that shale rock in the United States holds the equivalent of 2.1

trillion barrels of oil -- the same as the original world supply of

conventional

petroleum. However, the only way to recover this alleged treasure is to

strip-mine a vast wilderness area and heat the rock to 500 degrees Celsius,

creating mountains of waste material in the process. Here too, opposition is

growing

to this massively destructive assault on the environment. Nevertheless,

Shell Oil has established a pilot plant in Rio Blanco County in western

Colorado

with strong support from the Bush Administration.

Life After the Peak

And so we have a portrait of the global energy situation after the peak of

conventional petroleum, with troops being rushed from one oil-producing hot

spot to another and a growing share of our transportation fuel being supplied

by nonpetroleum liquids of one sort or another. Exactly what form this future

energy equation will take cannot be foreseen with precision, but it is

obvious that the arduous process will shape American policy debates, domestic

and

foreign, for a long time.

As this brief assessment suggests, the passing of peak oil will have

profound and lasting consequences for this country, with no easy solutions. In

facing this future, we must, above all, disavow any simple answers, such as

energy

" independence " based on the pillage of America's remaining wilderness areas

or the false promise of corn-based ethanol

(which can supply only a tiny fraction of our transportation requirements).

It is clear, moreover, that many of the fuel alternatives proposed by the

Bush Administration pose significant dangers of their own and so should be

examined carefully before vast public sums are committed to their development.

The

safest and most morally defensible course is to repudiate any " consensus "

calling for the use of force to protect overseas petroleum supplies and to

strive to conserve what remains of the world's oil by using less of it.

Michael T. Klare is a professor of peace and world security studies at

Hampshire College in Amherst, Mass., and the author of Blood and Oil: The

Dangers

and Consequences of America's Growing Petroleum Dependency.

© 2007 Independent Media Institute. All rights reserved

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