Page 2 of 2 A new energy pessimism
emerges By Michael T Klare
worrisome
conclusion: because world oil demand is likely to
keep rising at a rapid tempo and the development
of new oilfields 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 curb their appetite
for petroleum significantly. "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. 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 US and most other
non-members of the Organization of Petroleum
Exporting Countries 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 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, 2 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 2 million
barrels.
In other words, what's actually
needed is 5 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 5 million barrels
per day year after year; production of ethanol and
other substitute fuels, along with alternative
fuels of various sorts, does 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 US Department
of Energy by the National Petroleum Council (NPC),
an oil-industry 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 land owned by
the US government. Contributing to the buzz around
its release was the identity of the report's
principal sponsor, former Exxon chief executive
officer Lee Raymond. Having previously expressed
skepticism about global warming, he now embraced
the report's call for the talking 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,
multibillion-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 such as 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 US interests, strategies, and
policymaking," the report states. "Many of the
expected changes could heighten risks to US energy
security in a world where US 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 oilfields 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 seat-belt. Fill up that
gasoline tank soon. The future is likely to be a
bumpy ride toward cliff's edge.
Note 1. For a review of
Paul Roberts' The End of Oil, see Brave nightmare world,
Asia Times Online, January 14, 2005.
Michael T Klare is a professor
of peace and world security studies at Hampshire
College in Amherst, Massachusetts, and the author
of Blood and Oil: The Dangers and Consequences
of America's Growing Dependence on Imported
Petroleum. His newest book, Rising Powers,
Shrinking Planet: The New Geopolitics of Energy,
will be published next spring by Metropolitan
Books.
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