G
Gandalf Grey
Guest
Tomgram: Michael Klare on Entering the Tough Oil Era
By Tom Engelhardt
Created Aug 17 2007 - 9:16am
- from TomDispatch [1]
News stories [2] just out report that the Bush administration is planning to
designate Iran's entire Revolutionary Guard Corps a "specially designated
global terrorist" in order to tighten sanctions on that country. This
follows a many-months-long drumbeat of U.S. claims against Iran -- for
arming not just Shiite militias [3] (and Sunni insurgents) with the most
sophisticated roadside bombs to attack American troops, but the Taliban [4]
as well (an especially unlikely charge). It also follows a growing eagerness
in Congress for passage of the Iran Counter-Proliferation Act [5]; reports
of rising administration frustration over the UN Security Council's
unwillingness to pass a third round of sanctions against Iran; a flurry of
insider leaks [6] that the Cheney wing of the administration is again
pushing for military action against the Iranians and that the Vice President
himself has urged [7] the launching of "airstrikes at suspected training
camps in Iran run by the Quds force, a special unit of the Iranian
Revolutionary Guard Corps"; reports that neocon think-tanks [8] and pundits
are joining the attack-Iran fray; constant claims from the President's
commanders and diplomats that the hand of Iran is behind any administration
misstep in the Middle East. In this context, it's worth remembering that the
President has long claimed he would not leave office with the Iranian
nuclear situation unsettled.
Michael Klare's latest piece offers perhaps the crucial context within which
to consider Cheney's urge to launch an air assault on Iran. If we are, as
Klare writes, entering a "tough-oil era," if global oil supplies are already
under intense pressure and oil prices ready to leap on any hint [9] of
possible oil disaster anywhere on the planet, then imagine what a major air
assault on Iran before January 2009 might mean. Actually, Secretary of
Defense Robert Gates helped [10] us imagine just this at his confirmation
hearings back in December 2006 when asked about the effects of such an
attack: "It's always awkward to talk about hypotheticals in this case. But I
think that while Iran cannot attack us directly militarily, I think that
their capacity to potentially close off the Persian Gulf to all exports of
oil, their potential to unleash a significant wave of terror both in the --
well, in the Middle East and in Europe and even here in this country is very
real."
Such an attack would, of course, be a straightforward act of global economic
madness; but, given the cast of characters - a classic neocon quip [11] of
the pre-Iraq invasion period was ""Everyone wants to go to Baghdad. Real men
want to go to Tehran..." -- that hardly takes the possibility off the
hypothetical "table" where all "options" so obdurately remain. An assault on
Iran aside, Klare, author of the indispensable Blood and Oil: The Dangers
and Consequences of America's Growing Dependence on Imported Petroleum [12],
suggests the nature of the hair-raising energy world we are now entering.
-- Tom
Entering the Tough Oil Era: The New Energy Pessimism
By Michael T. Klare
When "peak oil" theory [13] was first widely publicized in such path
breaking books as Kenneth Deffeyes' Hubbert's Peak (2001), Richard
Heinberg's The Party's Over (2002), David Goodstein's Out of Gas (2004), and
Paul Robert's The End of Oil (2004), energy industry officials and their
government associates largely ridiculed the notion. An imminent peak -- and
subsequent decline -- in global petroleum output was derided as crackpot
science with little geological foundation. "Based on [our] analysis," the
U.S. Department of Energy confidently asserted in 2004, "[we] would expect
conventional oil to peak closer to the middle than to the beginning of the
21st century."
Recently, however, a spate of high-level government and industry reports
have begun to suggest that the original peak-oil theorists were far closer
to the grim reality of global-oil availability than industry analysts were
willing to admit. Industry optimism regarding long-term energy-supply
prospects, these official reports indicate, has now given way to a
deep-seated pessimism, even in the biggest of Big Oil corporate
headquarters.
The change in outlook is perhaps best suggested by a July 27 article in the
Wall Street Journal [14] headlined, "Oil Profits Show Sign of Aging."
Although reporting staggering second-quarter profits for oil giants Exxon
Mobil and Royal Dutch Shell -- $10.3 billion for the former, $8.7 billion
for the latter -- the Journal sadly noted that investors are bracing for
disappointing results in future quarters as the cost of new production rises
and output at older fields declines. "All the oil companies are struggling
to grow production," explained Peter Hitchens, an analyst at the Teather and
Greenwood brokerage house. "[Yet] it's becoming more and more difficult to
bring projects in on time and on budget."
To appreciate the nature of Big Oil's dilemma, peak-oil theory must be
briefly revisited. As originally formulated by petroleum geologist M. King
Hubbert [15] in the 1950s, the concept holds that worldwide oil production
will rise until approximately half of the world's original petroleum
inheritance has been exhausted; once this point is reached, daily output
will hit a peak and begin an irreversible decline. Hubbert's successors,
including professor emeritus Kenneth Deffeyes [16] of Princeton, contend
that we have now consumed just about half the original supply and so are at,
or very near, the peak-production moment predicted by Hubbert.
Since the concept burst into public consciousness several years ago, its
proponents and critics have largely argued over whether or not we have
reached maximum worldwide petroleum output. In a way, this is a moot
argument, because the numbers involved in conventional oil output have
increasingly been obscured by oil derived from "unconventional" sources --
deep-offshore fields, tar sands, and natural-gas liquids, for example --
that are being blended into petroleum feedstocks used to make gasoline and
other fuels. In recent years, this has made the calculation of petroleum
supplies ever more complicated. As a result, it may be years more before we
can be certain of the exact timing of the global peak-oil moment.
On Tap: The Tough-Oil Era
There is, however, a second aspect to peak-oil theory, which is no less
relevant when it comes to the global-supply picture -- one that is far
easier to detect and assess today. Peak-oil theorists have long contended
that the first half of the world's oil to be extracted and consumed will be
the easy half. They are referring, of course, to the oil that's found on
shore or near to shore; oil close to the surface and concentrated in large
reservoirs; oil produced in friendly, safe, and welcoming places.
The other half -- what (if they are right) is left of the world's petroleum
supply -- is the tough oil. They mean oil that's buried far offshore or deep
underground; oil scattered in small, hard-to-find reservoirs; oil that must
be obtained from unfriendly, politically dangerous, or hazardous places. An
oil investor's eye-view of our energy planet today quickly reveals that we
already seem to be entering the tough-oil era. This explains the growing
pessimism among industry analysts as well as certain changes in behavior in
the energy marketplace.
In but one sign of the new reality, the price of benchmark U.S. light, sweet
crude oil for next-month delivery soared to new highs on July 31, topping
the previous record for intraday trading of $77.03 per barrel set in July
2006. Some observers are predicting that a price of $80 per barrel is just
around the corner; while John Kildruff, a perfectly sober analyst at futures
broker Man Financial, told Bloomberg.com [17], "We're only a headline of
significance away from $100 oil." New disruptions in Nigerian or Iraqi
supplies, or a U.S. military strike against Iran, he explained, could
trigger such a price increase in the energy equivalent of a nano-second.
A signal of another sort was provided by the government of Kazakhstan in
oil-rich Central Asia on August 7. It warned the private operators of the
giant offshore Kashagan oil project -- in the Kazakh sector of the Caspian
Sea -- to cut costs and speed the onset of production or face a possible
government takeover. In an interview [18], Prime Minister Karim Masimov said
threateningly: "We are very disappointed with the execution of this project.
If the operator can't resolve these problems, then we don't exclude their
possible replacement."
Kashagan [19], it must be borne in mind, is not just any oil project: it is
the largest field to be developed anywhere in the world since the discovery
of Alaska's Prudhoe Bay some 40 years ago. With estimated oil reserves of
9-13 billion barrels, it is crucial to the hopes of its principal
developers -- Exxon, ConocoPhillips, Shell, Total (of France), and Eni (of
Italy) -- to increase their output in the years ahead. Consistent with the
"tough oil" aspect of peak-oil theory, Kashagan is, however, proving
dauntingly difficult to turn into a successful font of petroleum. The oil
reservoir itself is buried beneath high-pressure strata of gas, making its
extraction exceedingly tricky, and it contains abnormally high levels of
deadly hydrogen sulfide; moreover, the entire field is located in a shallow
area of the Caspian Sea that freezes over for five months of the year and is
the breeding ground for rare seals and beluga sturgeon.
As a result of these and other problems, the Kashagan operating consortium
has seen the price-tag for launching the project nearly double -- from $10
billion to $19 billion -- and has postponed the onset of initial production
from 2005 to 2010, infuriating the Kazakh government, which had hoped to be
earning billions of dollars in taxes and royalties by now.
A Demanding World
And then there are those reports from high-level agencies and organizations
on the global energy picture, all coming to the same basic conclusion:
Whether or not the peak in world oil output is at hand, the future of the
global oil supply in a world of endlessly growing demand appears grim.
The first of these recent warnings, entitled the "Medium-Term Oil Market
Report," [20] was released on July 8 by the International Energy Agency [21]
(IEA), an arm of the Organization for Economic Cooperation and Development
(OECD), the club of major industrial powers. Although filled with statistics
and technical analyses, the report, assessing the global oil
supply-and-demand equation through 2012, seemed to leak anxiety and came to
a distinctly worrisome conclusion: Because world oil demand is likely to
keep rising at a rapid tempo and the development of new oil fields is not
expected to keep pace, significant shortfalls are likely to emerge within
the next five years.
The IEA report predicts that world economic activity will grow by an average
of 4.5% per year during this period -- driven largely by unbridled growth in
China, India, and other Asian dynamos. Global oil demand will rise, it
predicts, by about 2.2% per year, pushing world oil consumption from an
estimated 86.1 million barrels per day in 2007 to 95.8 million barrels by
2012. With luck and substantial new investment, the global oil industry may
be able to increase output sufficiently to satisfy this higher level of
demand -- but, if so, just barely. Beyond 2012, the production outlook
appears far grimmer. And keep in mind, this is the best-case scenario.
Underlying the report's conclusions are a number of specific fears. Despite
rising fuel prices, neither the mature consumers of the OECD countries, nor
newly affluent consumers in the developing world are likely to significantly
curb their appetite for petroleum. "Demand is growing, and as people become
accustomed to higher prices, they are starting to return to their previous
trends of high consumption," was the way Lawrence Eagles, an oil expert at
the IEA, summed the situation up [22]. This is clearly evident in the United
States, where record-high gasoline prices have not stopped drivers from
filling up their tanks and driving record distances.
In addition, oil output in the United States and most other non-members of
the Organization of Petroleum-Exporting Countries [23] (OPEC) has peaked, or
is about to do so, which means that the net contribution of non-OPEC
suppliers will only diminish between now and 2012. That, in turn, means that
the burden of providing the required additional oil will have to fall on the
OPEC countries, most of which are located in unstable areas of the Middle
East and Africa.
The numbers are actually staggering. Just to satisfy a demand for an extra
10 million or so barrels per day between now and 2012, two million barrels
per day in new oil would have to be added to global stocks yearly. But even
this calculation is misleading, as Eagles of the IEA made clear. In fact,
the world would initially need "more than 3 million barrels per day of new
oil each year [just] to offset the falling production in the mature fields
outside of OPEC" -- and that's before you even get near that additional two
million barrels.
In other words, what's actually needed is five million barrels of new oil
each year, a truly daunting challenge since almost all of this oil will have
to be found in Iran, Iraq, Kuwait, Saudi Arabia, Algeria, Angola, Libya,
Nigeria, Venezuela, and one or two other countries. These are not places
that exactly inspire investor confidence of a sort that could attract the
many billions of dollars needed to ramp up production enough to satisfy
global requirements.
Read between the lines and one quickly perceives a worst-case scenario in
which the necessary investment is not forthcoming; OPEC production does not
grow by five million barrels per day year after year; ethanol and other
substitute-fuel production, along with alternate fuels of various sorts, do
not grow fast enough to fill the gap; and, in the not-too-distant future, a
substantial shortage of oil leads to a global economic meltdown.
The Missing Trillions
A very similar prognosis emerges from a careful reading of "Facing the Hard
Truths About Energy," the second major report to be released in July.
Submitted to the U.S. Department of Energy by the National Petroleum Council
[24] (NPC), an oil-industrial association, this report encapsulated the view
of both industry officials and academic analysts. It was widely praised for
providing a "balanced" approach to the energy dilemma. It called for both
increased fuel-efficiency standards for vehicles and increased oil and gas
drilling on federal lands. Contributing to the buzz around its release was
the identity of the report's principal sponsor, former Exxon CEO Lee
Raymond. Having previously expressed skepticism about global warming, he now
embraced the report's call for the taking of significant steps to curb
carbon-dioxide emissions.
Like the IEA report, the NPC study does claim that -- with the perfect mix
of policies and an adequate level of investment -- the energy industry would
be capable of satisfying oil and gas demand for some years to come.
"Fortunately, the world is not running out of energy resources," the report
bravely asserts. Read deep into the report, though, and these optimistic
words begin to dissolve as its emphasis switches to the growing difficulties
(and costs) of extracting oil and gas from less-than-favorable locations and
the geopolitical risks associated with a growing global reliance on
potentially hostile, unstable suppliers.
Again, the numbers involved are staggering. According to the NPC, an
estimated $20 trillion in new investment (that's trillion, not billion) will
be needed between now and 2030 to ensure sufficient energy for anticipated
demand. This works out to "$3,000 per person alive today" in a world in
which a good half of humanity earns substantially less than that each year.
These funds, which can only come from those of us in the wealthier
countries, will be needed, the council notes, in "building new,
multi-billion-dollar oil platforms in water thousands of feet deep, laying
pipelines in difficult terrain and across country borders, expanding
refineries, constructing vessels and terminals to ship and store liquefied
natural gas, building railroads to transport coal and biomass, and stringing
new high-voltage transmission lines from remote wind farms." Adding to the
magnitude of this challenge, "future projects are likely to be more complex
and remote, resulting in higher costs per unit of energy produced." Again,
think tough oil.
The report then notes the obvious: "A stable and attractive investment
climate will be necessary to attract adequate capital for evolution and
expansion of the energy infrastructure." And this is where any astute
observer should begin to get truly alarmed; for, as the study itself notes,
no such climate can be expected. As the center of gravity of world oil
production shifts decisively to OPEC suppliers and to state-centric energy
producers like Russia, geopolitical rather than market factors will come to
dominate the energy industry and a whole new set of instabilities will
characterize the oil trade.
"These shifts pose profound implications for U.S. interests, strategies, and
policy-making," the 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."
Read from this perspective, the recent reports from pillars of the Big-
Oil/wealthy-nation establishment suggest that the basic logic of peak-oil
theory is on the mark and hard times are ahead when it comes to global
oil-and-gas sufficiency. Both reports claim that with just the right menu of
corrective policies and an unrealistic streak of pure luck -- as in no set
of major Katrina-like hurricanes barreling into oil fields or refineries, no
new wars in Middle Eastern oil producing areas, no political collapse in
Nigeria -- we can somehow stagger through to 2012 and maybe just beyond
without a global economic meltdown. But in an era of tough oil, the odds tip
toward tough luck as well. Buckle your seatbelt. Fill up that gas tank soon.
The future is likely to be a bumpy ride toward cliff's edge.
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 Dependence on Imported
Petroleum [25]. His newest book, Rising Powers, Shrinking Planet: The New
Geopolitics of Energy, will be published in the spring of 2008 by
Metropolitan Books.
Copyright 2007 Michael T. Klare
_______
About author Tom Engelhardt, who runs the Nation Institute's Tomdispatch.com
[26] ("a regular antidote to the mainstream media"), is the co-founder of
the American Empire Project [27] and, most recently, the author of Mission
Unaccomplished: Tomdispatch Interviews with American Iconoclasts and
Dissenters [28] (Nation Books), the first collection of Tomdispatch
interviews.
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson
By Tom Engelhardt
Created Aug 17 2007 - 9:16am
- from TomDispatch [1]
News stories [2] just out report that the Bush administration is planning to
designate Iran's entire Revolutionary Guard Corps a "specially designated
global terrorist" in order to tighten sanctions on that country. This
follows a many-months-long drumbeat of U.S. claims against Iran -- for
arming not just Shiite militias [3] (and Sunni insurgents) with the most
sophisticated roadside bombs to attack American troops, but the Taliban [4]
as well (an especially unlikely charge). It also follows a growing eagerness
in Congress for passage of the Iran Counter-Proliferation Act [5]; reports
of rising administration frustration over the UN Security Council's
unwillingness to pass a third round of sanctions against Iran; a flurry of
insider leaks [6] that the Cheney wing of the administration is again
pushing for military action against the Iranians and that the Vice President
himself has urged [7] the launching of "airstrikes at suspected training
camps in Iran run by the Quds force, a special unit of the Iranian
Revolutionary Guard Corps"; reports that neocon think-tanks [8] and pundits
are joining the attack-Iran fray; constant claims from the President's
commanders and diplomats that the hand of Iran is behind any administration
misstep in the Middle East. In this context, it's worth remembering that the
President has long claimed he would not leave office with the Iranian
nuclear situation unsettled.
Michael Klare's latest piece offers perhaps the crucial context within which
to consider Cheney's urge to launch an air assault on Iran. If we are, as
Klare writes, entering a "tough-oil era," if global oil supplies are already
under intense pressure and oil prices ready to leap on any hint [9] of
possible oil disaster anywhere on the planet, then imagine what a major air
assault on Iran before January 2009 might mean. Actually, Secretary of
Defense Robert Gates helped [10] us imagine just this at his confirmation
hearings back in December 2006 when asked about the effects of such an
attack: "It's always awkward to talk about hypotheticals in this case. But I
think that while Iran cannot attack us directly militarily, I think that
their capacity to potentially close off the Persian Gulf to all exports of
oil, their potential to unleash a significant wave of terror both in the --
well, in the Middle East and in Europe and even here in this country is very
real."
Such an attack would, of course, be a straightforward act of global economic
madness; but, given the cast of characters - a classic neocon quip [11] of
the pre-Iraq invasion period was ""Everyone wants to go to Baghdad. Real men
want to go to Tehran..." -- that hardly takes the possibility off the
hypothetical "table" where all "options" so obdurately remain. An assault on
Iran aside, Klare, author of the indispensable Blood and Oil: The Dangers
and Consequences of America's Growing Dependence on Imported Petroleum [12],
suggests the nature of the hair-raising energy world we are now entering.
-- Tom
Entering the Tough Oil Era: The New Energy Pessimism
By Michael T. Klare
When "peak oil" theory [13] was first widely publicized in such path
breaking books as Kenneth Deffeyes' Hubbert's Peak (2001), Richard
Heinberg's The Party's Over (2002), David Goodstein's Out of Gas (2004), and
Paul Robert's The End of Oil (2004), energy industry officials and their
government associates largely ridiculed the notion. An imminent peak -- and
subsequent decline -- in global petroleum output was derided as crackpot
science with little geological foundation. "Based on [our] analysis," the
U.S. Department of Energy confidently asserted in 2004, "[we] would expect
conventional oil to peak closer to the middle than to the beginning of the
21st century."
Recently, however, a spate of high-level government and industry reports
have begun to suggest that the original peak-oil theorists were far closer
to the grim reality of global-oil availability than industry analysts were
willing to admit. Industry optimism regarding long-term energy-supply
prospects, these official reports indicate, has now given way to a
deep-seated pessimism, even in the biggest of Big Oil corporate
headquarters.
The change in outlook is perhaps best suggested by a July 27 article in the
Wall Street Journal [14] headlined, "Oil Profits Show Sign of Aging."
Although reporting staggering second-quarter profits for oil giants Exxon
Mobil and Royal Dutch Shell -- $10.3 billion for the former, $8.7 billion
for the latter -- the Journal sadly noted that investors are bracing for
disappointing results in future quarters as the cost of new production rises
and output at older fields declines. "All the oil companies are struggling
to grow production," explained Peter Hitchens, an analyst at the Teather and
Greenwood brokerage house. "[Yet] it's becoming more and more difficult to
bring projects in on time and on budget."
To appreciate the nature of Big Oil's dilemma, peak-oil theory must be
briefly revisited. As originally formulated by petroleum geologist M. King
Hubbert [15] in the 1950s, the concept holds that worldwide oil production
will rise until approximately half of the world's original petroleum
inheritance has been exhausted; once this point is reached, daily output
will hit a peak and begin an irreversible decline. Hubbert's successors,
including professor emeritus Kenneth Deffeyes [16] of Princeton, contend
that we have now consumed just about half the original supply and so are at,
or very near, the peak-production moment predicted by Hubbert.
Since the concept burst into public consciousness several years ago, its
proponents and critics have largely argued over whether or not we have
reached maximum worldwide petroleum output. In a way, this is a moot
argument, because the numbers involved in conventional oil output have
increasingly been obscured by oil derived from "unconventional" sources --
deep-offshore fields, tar sands, and natural-gas liquids, for example --
that are being blended into petroleum feedstocks used to make gasoline and
other fuels. In recent years, this has made the calculation of petroleum
supplies ever more complicated. As a result, it may be years more before we
can be certain of the exact timing of the global peak-oil moment.
On Tap: The Tough-Oil Era
There is, however, a second aspect to peak-oil theory, which is no less
relevant when it comes to the global-supply picture -- one that is far
easier to detect and assess today. Peak-oil theorists have long contended
that the first half of the world's oil to be extracted and consumed will be
the easy half. They are referring, of course, to the oil that's found on
shore or near to shore; oil close to the surface and concentrated in large
reservoirs; oil produced in friendly, safe, and welcoming places.
The other half -- what (if they are right) is left of the world's petroleum
supply -- is the tough oil. They mean oil that's buried far offshore or deep
underground; oil scattered in small, hard-to-find reservoirs; oil that must
be obtained from unfriendly, politically dangerous, or hazardous places. An
oil investor's eye-view of our energy planet today quickly reveals that we
already seem to be entering the tough-oil era. This explains the growing
pessimism among industry analysts as well as certain changes in behavior in
the energy marketplace.
In but one sign of the new reality, the price of benchmark U.S. light, sweet
crude oil for next-month delivery soared to new highs on July 31, topping
the previous record for intraday trading of $77.03 per barrel set in July
2006. Some observers are predicting that a price of $80 per barrel is just
around the corner; while John Kildruff, a perfectly sober analyst at futures
broker Man Financial, told Bloomberg.com [17], "We're only a headline of
significance away from $100 oil." New disruptions in Nigerian or Iraqi
supplies, or a U.S. military strike against Iran, he explained, could
trigger such a price increase in the energy equivalent of a nano-second.
A signal of another sort was provided by the government of Kazakhstan in
oil-rich Central Asia on August 7. It warned the private operators of the
giant offshore Kashagan oil project -- in the Kazakh sector of the Caspian
Sea -- to cut costs and speed the onset of production or face a possible
government takeover. In an interview [18], Prime Minister Karim Masimov said
threateningly: "We are very disappointed with the execution of this project.
If the operator can't resolve these problems, then we don't exclude their
possible replacement."
Kashagan [19], it must be borne in mind, is not just any oil project: it is
the largest field to be developed anywhere in the world since the discovery
of Alaska's Prudhoe Bay some 40 years ago. With estimated oil reserves of
9-13 billion barrels, it is crucial to the hopes of its principal
developers -- Exxon, ConocoPhillips, Shell, Total (of France), and Eni (of
Italy) -- to increase their output in the years ahead. Consistent with the
"tough oil" aspect of peak-oil theory, Kashagan is, however, proving
dauntingly difficult to turn into a successful font of petroleum. The oil
reservoir itself is buried beneath high-pressure strata of gas, making its
extraction exceedingly tricky, and it contains abnormally high levels of
deadly hydrogen sulfide; moreover, the entire field is located in a shallow
area of the Caspian Sea that freezes over for five months of the year and is
the breeding ground for rare seals and beluga sturgeon.
As a result of these and other problems, the Kashagan operating consortium
has seen the price-tag for launching the project nearly double -- from $10
billion to $19 billion -- and has postponed the onset of initial production
from 2005 to 2010, infuriating the Kazakh government, which had hoped to be
earning billions of dollars in taxes and royalties by now.
A Demanding World
And then there are those reports from high-level agencies and organizations
on the global energy picture, all coming to the same basic conclusion:
Whether or not the peak in world oil output is at hand, the future of the
global oil supply in a world of endlessly growing demand appears grim.
The first of these recent warnings, entitled the "Medium-Term Oil Market
Report," [20] was released on July 8 by the International Energy Agency [21]
(IEA), an arm of the Organization for Economic Cooperation and Development
(OECD), the club of major industrial powers. Although filled with statistics
and technical analyses, the report, assessing the global oil
supply-and-demand equation through 2012, seemed to leak anxiety and came to
a distinctly worrisome conclusion: Because world oil demand is likely to
keep rising at a rapid tempo and the development of new oil fields is not
expected to keep pace, significant shortfalls are likely to emerge within
the next five years.
The IEA report predicts that world economic activity will grow by an average
of 4.5% per year during this period -- driven largely by unbridled growth in
China, India, and other Asian dynamos. Global oil demand will rise, it
predicts, by about 2.2% per year, pushing world oil consumption from an
estimated 86.1 million barrels per day in 2007 to 95.8 million barrels by
2012. With luck and substantial new investment, the global oil industry may
be able to increase output sufficiently to satisfy this higher level of
demand -- but, if so, just barely. Beyond 2012, the production outlook
appears far grimmer. And keep in mind, this is the best-case scenario.
Underlying the report's conclusions are a number of specific fears. Despite
rising fuel prices, neither the mature consumers of the OECD countries, nor
newly affluent consumers in the developing world are likely to significantly
curb their appetite for petroleum. "Demand is growing, and as people become
accustomed to higher prices, they are starting to return to their previous
trends of high consumption," was the way Lawrence Eagles, an oil expert at
the IEA, summed the situation up [22]. This is clearly evident in the United
States, where record-high gasoline prices have not stopped drivers from
filling up their tanks and driving record distances.
In addition, oil output in the United States and most other non-members of
the Organization of Petroleum-Exporting Countries [23] (OPEC) has peaked, or
is about to do so, which means that the net contribution of non-OPEC
suppliers will only diminish between now and 2012. That, in turn, means that
the burden of providing the required additional oil will have to fall on the
OPEC countries, most of which are located in unstable areas of the Middle
East and Africa.
The numbers are actually staggering. Just to satisfy a demand for an extra
10 million or so barrels per day between now and 2012, two million barrels
per day in new oil would have to be added to global stocks yearly. But even
this calculation is misleading, as Eagles of the IEA made clear. In fact,
the world would initially need "more than 3 million barrels per day of new
oil each year [just] to offset the falling production in the mature fields
outside of OPEC" -- and that's before you even get near that additional two
million barrels.
In other words, what's actually needed is five million barrels of new oil
each year, a truly daunting challenge since almost all of this oil will have
to be found in Iran, Iraq, Kuwait, Saudi Arabia, Algeria, Angola, Libya,
Nigeria, Venezuela, and one or two other countries. These are not places
that exactly inspire investor confidence of a sort that could attract the
many billions of dollars needed to ramp up production enough to satisfy
global requirements.
Read between the lines and one quickly perceives a worst-case scenario in
which the necessary investment is not forthcoming; OPEC production does not
grow by five million barrels per day year after year; ethanol and other
substitute-fuel production, along with alternate fuels of various sorts, do
not grow fast enough to fill the gap; and, in the not-too-distant future, a
substantial shortage of oil leads to a global economic meltdown.
The Missing Trillions
A very similar prognosis emerges from a careful reading of "Facing the Hard
Truths About Energy," the second major report to be released in July.
Submitted to the U.S. Department of Energy by the National Petroleum Council
[24] (NPC), an oil-industrial association, this report encapsulated the view
of both industry officials and academic analysts. It was widely praised for
providing a "balanced" approach to the energy dilemma. It called for both
increased fuel-efficiency standards for vehicles and increased oil and gas
drilling on federal lands. Contributing to the buzz around its release was
the identity of the report's principal sponsor, former Exxon CEO Lee
Raymond. Having previously expressed skepticism about global warming, he now
embraced the report's call for the taking of significant steps to curb
carbon-dioxide emissions.
Like the IEA report, the NPC study does claim that -- with the perfect mix
of policies and an adequate level of investment -- the energy industry would
be capable of satisfying oil and gas demand for some years to come.
"Fortunately, the world is not running out of energy resources," the report
bravely asserts. Read deep into the report, though, and these optimistic
words begin to dissolve as its emphasis switches to the growing difficulties
(and costs) of extracting oil and gas from less-than-favorable locations and
the geopolitical risks associated with a growing global reliance on
potentially hostile, unstable suppliers.
Again, the numbers involved are staggering. According to the NPC, an
estimated $20 trillion in new investment (that's trillion, not billion) will
be needed between now and 2030 to ensure sufficient energy for anticipated
demand. This works out to "$3,000 per person alive today" in a world in
which a good half of humanity earns substantially less than that each year.
These funds, which can only come from those of us in the wealthier
countries, will be needed, the council notes, in "building new,
multi-billion-dollar oil platforms in water thousands of feet deep, laying
pipelines in difficult terrain and across country borders, expanding
refineries, constructing vessels and terminals to ship and store liquefied
natural gas, building railroads to transport coal and biomass, and stringing
new high-voltage transmission lines from remote wind farms." Adding to the
magnitude of this challenge, "future projects are likely to be more complex
and remote, resulting in higher costs per unit of energy produced." Again,
think tough oil.
The report then notes the obvious: "A stable and attractive investment
climate will be necessary to attract adequate capital for evolution and
expansion of the energy infrastructure." And this is where any astute
observer should begin to get truly alarmed; for, as the study itself notes,
no such climate can be expected. As the center of gravity of world oil
production shifts decisively to OPEC suppliers and to state-centric energy
producers like Russia, geopolitical rather than market factors will come to
dominate the energy industry and a whole new set of instabilities will
characterize the oil trade.
"These shifts pose profound implications for U.S. interests, strategies, and
policy-making," the 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."
Read from this perspective, the recent reports from pillars of the Big-
Oil/wealthy-nation establishment suggest that the basic logic of peak-oil
theory is on the mark and hard times are ahead when it comes to global
oil-and-gas sufficiency. Both reports claim that with just the right menu of
corrective policies and an unrealistic streak of pure luck -- as in no set
of major Katrina-like hurricanes barreling into oil fields or refineries, no
new wars in Middle Eastern oil producing areas, no political collapse in
Nigeria -- we can somehow stagger through to 2012 and maybe just beyond
without a global economic meltdown. But in an era of tough oil, the odds tip
toward tough luck as well. Buckle your seatbelt. Fill up that gas tank soon.
The future is likely to be a bumpy ride toward cliff's edge.
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 Dependence on Imported
Petroleum [25]. His newest book, Rising Powers, Shrinking Planet: The New
Geopolitics of Energy, will be published in the spring of 2008 by
Metropolitan Books.
Copyright 2007 Michael T. Klare
_______
About author Tom Engelhardt, who runs the Nation Institute's Tomdispatch.com
[26] ("a regular antidote to the mainstream media"), is the co-founder of
the American Empire Project [27] and, most recently, the author of Mission
Unaccomplished: Tomdispatch Interviews with American Iconoclasts and
Dissenters [28] (Nation Books), the first collection of Tomdispatch
interviews.
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"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson