More proof that the era of oil is over
- From: "Joe S." <nobody@xxxxxxxxxxx>
- Date: Sun, 14 Aug 2005 10:47:33 GMT
http://www.tompaine.com/articles/20050808/the_twilight_era_of_petroleum.php
QUOTE
The Twilight Era of Petroleum
Michael T. Klare
August 08, 2005
Michael T. Klare is the professor of Peace and World Security Studies at
Hampshire College and the author, most recently, of Blood and Oil: The
Dangers and Consequences of America's Growing Dependence on Imported
Petroleum (Owl Books) as well as Resource Wars, The New Landscape of Global
Conflict. This article first appeared on TomDispatch and is reprinted with
permission.
Several recent developments -persistently high gasoline prices,
unprecedented warnings from the Secretary of Energy and the major oil
companies, China's brief pursuit of the American Unocal Corporation-suggest
that we are just about to enter the Twilight Era of Petroleum, a time of
chronic energy shortages and economic stagnation as well as recurring crisis
and conflict. Petroleum will not exactly disappear during this period-it
will still be available at the neighborhood gas pump, for those who can
afford it-but it will not be cheap and abundant, as it has been for the past
30 years. The culture and lifestyles we associate with the heyday of the
Petroleum Age-large, gas-guzzling cars and SUVs, low-density suburban
sprawl, strip malls and mega-malls, cross-country driving vacations, and so
on-will give way to more constrained patterns of living based on a tight
gasoline diet. While Americans will still consume the lion's share of global
petroleum stocks on a daily basis, we will have to compete far more
vigorously with consumers from other countries, including China and India,
for access to an ever-diminishing pool of supply.
The concept of a "twilight" of petroleum derives from what is known about
the global supply and demand equation. Energy experts have long acknowledged
that the global production of oil will someday reach a moment of maximum (or
"peak") daily output, followed by an increasingly sharp drop in supply. But
while the basic concept of peak oil has gained substantial worldwide
acceptance, there is still much confusion about its actual character. Many
people who express familiarity with the concept tend to view peak oil as a
sharp pinnacle, with global output rising to the summit one month and
dropping sharply the next; and looking back from a hundred years hence,
things might actually appear this way. But for those of us embedded in this
moment of time, peak oil will be experienced as something more like a rocky
plateau-an extended period of time, perhaps several decades in length,
during which global oil production will remain at or near current levels but
will fail to achieve the elevated output deemed necessary to satisfy future
world demand. The result will be perennially high prices, intense
international competition for available supplies, and periodic shortages
caused by political and social unrest in the producing countries.
The Era of Easy Oil Is Over
The Twilight Era of oil, as I term it, is likely to be characterized by the
growing politicization of oil policy and the recurring use of military force
to gain control over valuable supplies. This is so because oil, alone among
all major trading commodities, is viewed as a strategic material; something
so vital to a nation's economic well-being, that is, as to justify the use
of force in assuring its availability. That nations are prepared to go to
war over petroleum is not exactly a new phenomenon. The pursuit of foreign
oil was a significant factor in World War II and the 1991 Gulf War, to offer
only two examples; but it is likely to become ever more a part of our
everyday world in a period of increased competition and diminishing
supplies.
This new era will not begin with a single, clearly defined incident, but
rather with a series of events suggesting the transition from a period of
relative abundance to a time of persistent scarcity. These events will take
both economic and political form: on the one hand, rising energy prices and
contracting supplies; on the other, more diplomatic crises and military
assertiveness. Recently, we have witnessed significant examples of both.
On the economic side, the most important signals have been provided by
rising crude oil prices and warnings of diminished output in the future. A
barrel of crude now costs just over $60-approximately twice the figure for
this time a year ago-and many experts believe that the price could rise much
higher if the supply situation continues to deteriorate. "We've entered a
new era of oil prices," said energy expert Daniel Yergin in an April
interview with Time magazine. If markets remain as tight as they are at
present, "you'll see a lot more volatility, and you could see prices spike
up as high as $65 to $80."
Analysts at Goldman Sachs are even more pessimistic, suggesting that oil
could reach as high as $105 a barrel in the near future. "We believe that
oil markets may have entered the early stages of what we have referred to as
a 'super-spike' period," they reported in April, with elevated prices
prevailing for a "multi-year" stretch of time.
Of course, the world has experienced severe price spikes before-most notably
in 1973-74 following the October War between Egypt and Israel and the Arab
oil embargo, as well as in 1979-80 following the Iranian Revolution-but this
time the high prices are likely to persist indefinitely, rather than recede
as was the case in the past. This is so because new production (in such
places as the Caspian Sea and off the West coast of Africa) is not coming on
line fast enough or furiously enough to compensate for the decline in output
from older fields, such as those in North America and the North Sea. On top
of this, it is becoming increasingly evident that stalwart producers like
Russia and Saudi Arabia have depleted many of their most prolific fields and
are no longer capable of boosting their total output in significant ways.
Until recently, it was considered heresy for officials of the oil industry
and government bodies like the U.S. Department of Energy to acknowledge the
possibility of a near-term contraction in oil supplies. But several recent
events signal the breakdown of the dominant consensus:
a.. On July 8, Secretary of Energy Samuel Bodman told reporters from the
Christian Science Monitor that the era of cheap and abundant petroleum may
now be over. "For the first time in my lifetime," he declared, major oil
suppliers like Saudi Arabia "are right at their ragged edge" in their
ability to satisfy rising world demand for energy. Despite the huge increase
in international demand, Bodman noted, the world's leading producers are not
capable of substantially expanding their output, and so we should expect a
continuing upward trend in gasoline prices. "We are in a new situation," he
asserted. "We are likely at least in the near-term to be dealing with a
different pricing regime than we have seen before."
b.. One week later, oil giant Chevron took out a two-page spread in The
New York Times, the Wall Street Journal , and other major papers to signal
its awareness of the impending energy crunch. "One thing is clear," the
advertisement announced, "the era of easy oil is over." This was an
extraordinary admission by a major oil company. The ad went on to say that
"many of the world's oil and gas fields are maturing" and that "new energy
discoveries are mainly occurring in places where resources are difficult to
extract, physically, economically, and even politically." Equally revealing,
the ad noted that the world will consume approximately one trillion barrels
of oil over the next 30 years-about as much untapped petroleum as is thought
to lie in the world's known, "proven" reserves.
Oil Shockwave
These, and other recent reports from trade and industry sources, suggest
that the anticipated slowdown in global petroleum output will have severe
economic consequences. If prices spike at $100 a barrel, as suggested by
Goldman Sachs, a global economic recession is almost unavoidable. At the
same time, the slowdown in output is sure to have significant political and
military consequences, as suggested by another set of recent events.
The most notable of these, of course, is the domestic brouhaha triggered by
the $18.5 billion bid by the Chinese National Offshore Oil Corporation
(CNOOC) for U.S.-based Unocal, originally known as the Union Oil Company of
California. Unocal, the owner of substantial oil and gas reserves in Asia,
was originally wooed by Chevron, which offered $16.8 billion for the company
earlier this year. The very fact that a Chinese firm had been prepared to
outbid a powerful American firm for control of a major U.S.-based oil
company is immensely significant in purely economic terms.
Since abandoned by the Chinese because of fierce American political
opposition, the effort, if consummated, would have represented the largest
transaction ever by a Chinese enterprise in the United States. But the bid
triggered intense political debate and resistance in Washington because of
CNOOC's ties to the Chinese government-it is 70 percent owned by the
state-and because the principal commodity involved, oil, was considered so
vital to the U.S. economy and was thought to be less plentiful than once
assumed. Fearing that China might gain control over valuable supplies of oil
and gas that would someday be needed at home or by U.S. allies in Asia,
conservative politicians sought to block CNOOC's acquisition of Unocal by
recasting the matter in national security terms.
"This is a national security issue," former CIA Director R. James Woolsey
testified before the House Armed Services Committee in July. "China is
pursuing a national strategy of domination of the energy markets and
strategic dominance of the western Pacific"-a strategy, he argued, that
would be greatly enhanced by CNOOC's acquisition of Unocal. Seen from this
perspective, CNOOC's bid was considered a threat to U.S. security interests
and thus could have been barred by Congress or the President.
The notion of blocking a commercial transaction by a major foreign trading
partner of the United States obviously flew in the face of the reigning
economic doctrine of free trade and globalization. By invoking national
security considerations, however, the president is empowered to bar the
acquisition of a U.S. company in accordance with the Defense Production Act
of 1950, a Cold War measure designed to prevent the flow of advanced
technologies to the Soviet Union and it allies. This is precisely what was
being proposed by a huge majority in the House of Representatives. On June
30, the House adopted a resolution declaring that CNOOC's takeover of Unocal
could "impair the national security of the United States" and therefore
should be barred by the president under terms of the 1950 law. This outlook
then made its way into the omnibus energy bill adopted by Congress before
its summer recess: Citing potential national security aspects of the matter,
the bill imposed a mandatory 120-day federal review of the CNOOC
bid-effectively ensuring its demise.
Further evidence of a growing amalgamation between energy issues and U.S.
national security policy can be found in the Pentagon's 2005 report on
Chinese military power, released on July 20. While in previous years this
report had focused mainly on China's purported threat to the island of
Taiwan, this year's edition pays as much attention to the military
implications of China's growing dependence on imported oil and natural gas.
"This dependence on overseas resources and energy supplies... is playing a
role in shaping China's strategy and policy," the report notes. "Such
concerns factor heavily in Beijing's relations with Angola, Central Asia,
Indonesia, the Middle East (including Iran), Russia, Sudan and Venezuela...
Beijing's belief that it requires such special relationships in order to
assure its energy access could shape its defense strategy and force planning
in the future."
The unclassified version of the Pentagon report does not state what steps
Washington should take in response to these developments, but the
implications are obvious: The United States must strengthen its own forces
in key oil-producing regions so as to preclude any drive by China to
dominate or control these areas.
Just how seriously American policymakers view these various energy-related
developments is further revealed in another recent event: the first
high-profile "war game" featuring an overseas oil crisis. Known as "Oil
Shockwave," this extraordinary exercise was chaired by Senators Richard
Lugar of Indiana and Joe Lieberman of Connecticut, and featured the
participation of such prominent figures as former CIA Director Robert M.
Gates, former Marine Corps Commandant General P. X. Kelley, and former
National Economic Adviser Gene B. Sperling. According to its sponsors, the
game was conducted to determine what steps the United States could take to
mitigate the impact of a significant disruption in overseas production and
delivery, such as might be produced by a civil war in Nigeria and a
terrorist upsurge in Saudi Arabia. The answer: practically nothing. "Once
oil supply disruptions occur," the participants concluded, "there is little
that can be done in the short term to protect the U.S. economy from its
impacts, including gasoline above $5 per gallon and a sharp decline in
economic growth potentially leading into a recession."
Not surprisingly, the outcome of the exercise produced a great deal of alarm
among its participants. "This simulation serves as a clear warning that even
relatively small reductions in oil supply will result in tremendous national
security and economic problems for the country," said Robbie Diamond of
Securing America's Energy Future (SAFE), one of the event's principal
sponsors. "The issue deserves immediate attention."
Entering the Era of Resource Wars
>From what is known of this exercise, "Oil Shockwave" did not consider the
use of military force to deal with the imagined developments. But if recent
history is any indication, this is sure to be one of the actions
contemplated by U.S. policymakers in the event of an actual crisis. Indeed,
it is official U.S. policy-enshrined in the "Carter Doctrine" of January 23,
1980-to use military force when necessary to resist any hostile effort to
impede the flow of Middle Eastern oil.
This principle was first invoked by President Reagan to allow the protection
of Kuwaiti oil tankers by U.S. forces during the Iran-Iraq War of 1980-88
and by President Bush Senior to authorize the protection of Saudi Arabia by
U.S. forces during the first Gulf War of 1990-91. The same basic principle
underlay the military and economic "containment" of Iraq from 1991 to 2003;
and, when that approach failed to achieve its intended result of "regime
change," the use of military force to bring it about.
A similar reliance on force would undoubtedly be the outcome of at least one
of the key imagined events in the Oil Shockwave exercise: a major terrorist
upheaval in Saudi Arabia leading to the mass evacuation of foreign oil
workers and the crippling of Saudi oil output. It is inconceivable that
President Bush or his successor would refrain from the use of military force
in such a situation, particularly given the historic presence of American
troops in and around major Saudi oilfields.
In setting the stage for its simulated crisis, Oil Shockwave identified a
set of conditions that provide a vivid preview of what we can expect during
the Twilight Era of Petroleum:
a.. Global oil prices exceeding $150 per barrel
b.. Gasoline prices of $5.00 or more per gallon
c.. A spike in the consumer price index of more than 12 percent
d.. A protracted recession
e.. A decline of over 25 percent in the Standard & Poor's 500 stock index
f.. A crisis with China over Taiwan
g.. Increased friction with Saudi Arabia over U.S. policy toward Israel
Whether we experience these precise conditions cannot be foreseen at this
time, but it is incontestable that a slowdown in the global production of
petroleum will produce increasingly severe developments of this sort and, in
a far tenser, more desperate world, almost certainly threaten resource wars
of all sorts; nor will this be a temporary situation from which we can hope
to recover quickly. It will be a semi-permanent state of affairs.
Eventually, of course, global oil production will not merely be stagnant, as
during the Twilight Era, but will begin a gradual, irreversible decline,
leading to the end of the Petroleum Age altogether. Just how difficult and
dangerous the Twilight Era proves to be, and just how quickly it will come
to an end, will depend on one key factor: How quickly we move to reduce our
reliance on petroleum as a major source of our energy and begin the
transition to alternative fuels. This transition cannot be avoided. It will
come whether we are prepared for it or not. The only way we can avert its
most painful features is by moving swiftly to lay the foundations for a
post-petroleum economy.
END QUOTE
Want to do something for your grandchildren?
Buy them stock in companies that manufacture bicycles and harnesses for
horses, mules, and oxen.
--
-----
Joe S.
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