Beyond the Age of Petroleum by Michael T. Klare
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[s] 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.
This article can be found on the web at:
http://www.thenation.com/doc/20071112/klare