The rise of the new energy world order
By Michael T Klare
Oil at US$110 a barrel. Gasoline at $3.35 (or more) per gallon. Diesel fuel at
$4 per gallon. Independent truckers forced off the road. Home heating oil
rising to unconscionable price levels. Jet fuel so expensive that three
low-cost airlines stopped flying in the past few weeks. This is just a taste of
the latest energy news, signaling a profound change in how all of us, in this
country and around the world, are going to live - trends that, so far as anyone
can predict, will only become more pronounced as energy supplies dwindle and
the global struggle over their allocation intensifies.
Energy of all sorts was once hugely abundant, making possible the worldwide
economic expansion of the past six decades. This expansion benefited the United
States above all - along with its "First World" allies in Europe and the
Pacific. Recently, however, a select group of former "Third World" countries -
China and India
in particular - have sought to participate in this energy bonanza by
industrializing their economies and selling a wide range of goods to
international markets. This, in turn, has led to an unprecedented spurt in
global energy consumption - a 47% rise in the past 20 years alone, according to
the US Department of Energy (DoE).
An increase of this sort would not be a matter of deep anxiety if the world's
primary energy suppliers were capable of producing the needed additional fuels.
Instead, we face a frightening reality: a marked slowdown in the expansion of
global energy supplies just as demand rises precipitously. These supplies are
not exactly disappearing - though that will occur sooner or later - but they
are not growing fast enough to satisfy soaring global demand.
The combination of rising demand, the emergence of powerful new energy
consumers, and the contraction of the global energy supply is demolishing the
energy-abundant world we are familiar with and creating in its place a new
world order. Think of it as rising powers/shrinking planet.
This new world order will be characterized by fierce international competition
for dwindling stocks of oil, natural gas, coal and uranium, as well as by a
tidal shift in power and wealth from energy-deficit states like China, Japan
and the United States to energy-surplus states like Russia, Saudi Arabia and
Venezuela. In the process, the lives of everyone will be affected in one way or
another - with poor and middle-class consumers in the energy-deficit states
experiencing the harshest effects. That's most of us and our children, in case
you hadn't quite taken it in.
Here, in a nutshell, are five key forces in this new world order which will
change our planet:
Intense competition between older and newer economic powers for available
supplies of energy. Until very recently, the mature industrial
powers of Europe, Asia and North America consumed the lion's share of energy
and left the dregs for the developing world. As recently as 1990, the members
of the Organization of Economic Cooperation and Development (OECD), the club of
the world's richest nations, consumed approximately 57% of world energy; the
Soviet Union/Warsaw Pact bloc, 14%; and only 29% was left to the developing
world. But that ratio is changing: with strong economic growth in the
developing countries, a greater proportion of the world's energy is being
consumed by them. By 2010, the developing world's share of energy use is
expected to reach 40% and, if current trends persist, 47% by 2030.
China plays a critical role in all this. The Chinese alone are projected to
consume 17% of world energy by 2015, and 20% by 2025 - by which time, if trend
lines continue, it will have overtaken the United States as the world's leading
energy consumer. India, which, in 2004, accounted for 3.4% of world energy use,
is projected to reach 4.4% by 2025, while consumption in other rapidly
industrializing nations like Brazil, Indonesia, Malaysia, Thailand and Turkey
is expected to grow as well.
These rising economic dynamos will have to compete with the mature economic
powers for access to remaining untapped reserves of exportable energy - in many
cases, bought up long ago by the private energy firms of the mature powers like
Exxon Mobil, Chevron, BP, Total of France and Royal Dutch Shell. Of necessity,
the new contenders have developed a potent strategy for competing with the
Western "majors": they've created state-owned companies of their own and
fashioned strategic alliances with the national oil companies that now control
oil and gas reserves in many of the major energy-producing nations.
China's Sinopec, for example, has established a strategic alliance with Saudi
Aramco, the nationalized giant once owned by Chevron and Exxon Mobil, to
explore for natural gas in Saudi Arabia and market Saudi crude oil in China.
Likewise, the China National Petroleum Corporation (CNPC) will collaborate with
Gazprom, the massive state-controlled Russian natural gas monopoly, to build
pipelines and deliver Russian gas to China. Several of these state-owned firms,
including CNPC and India's Oil and Natural Gas Corporation, are now set to
collaborate with Petroleos de Venezuela SA in developing the extra-heavy crude
of the Orinoco belt once controlled by Chevron. In this new stage of energy
competition, the advantages long enjoyed by Western energy majors has been
eroded by vigorous, state-backed upstarts from the developing world.
The insufficiency of primary energy supplies. The capacity of the
global energy industry to satisfy demand is shrinking. By all accounts, the
global supply of oil will expand for perhaps another half decade before
reaching a peak and beginning to decline, while supplies of natural gas, coal
and uranium will probably grow for another decade or two before peaking and
commencing their own inevitable declines. In the meantime, global supplies of
these existing fuels will prove incapable of reaching the elevated levels
demanded.
Take oil. The US DoE claims that world oil demand, expected to reach 117.6
million barrels per day in 2030, will be matched by a supply that - miracle of
miracles - will hit exactly 117.7 million barrels (including petroleum liquids
derived from allied substances like natural gas and Canadian tar sands) at the
same time. Most energy professionals, however, consider this estimate highly
unrealistic. "One hundred million barrels is now in my view an optimistic
case," the chief executive officer of Total, Christophe de Margerie, typically
told a London oil conference in October 2007. "It is not my view; it is the
industry view, or the view of those who like to speak clearly, honestly, and
[are] not just trying to please people."
Similarly, the authors of the Medium-Term Oil Market Report, published in July
2007 by the International Energy Agency, an affiliate of the Organization for
Economic Cooperation and Development, concluded that world oil output might hit
96 million barrels per day by 2012, but was unlikely to go much beyond that as
a dearth of new discoveries made future growth impossible.
Daily business-page headlines point to a vortex of clashing trends: worldwide
demand will continue to grow as hundred of millions of newly-affluent Chinese
and Indian consumers line up to purchase their first automobile (some selling
for as little as $2,500); key older "elephant" oil fields like Ghawar in Saudi
Arabia and Canterell in Mexico are already in decline or expected to be so
soon; and the rate of new oil-field discoveries plunges year after year. So
expect global energy shortages and high prices to be a constant source of
hardship.
The painfully slow development of energy alternatives. It has
long been evident to policymakers that new sources of energy are desperately
needed to compensate for the eventual disappearance of existing fuels as well
as to slow the buildup of climate-changing "greenhouse gases" in the
atmosphere. In fact, wind and solar power have gained significant footholds in
some parts of the world. A number of other innovative energy solutions have
already been developed and even tested out in university and corporate
laboratories. But these alternatives, which now contribute only a tiny
percentage of the world's net fuel supply, are simply not being developed fast
enough to avert the multifaceted global energy catastrophe that lies ahead.
According to the DoE, renewable fuels, including wind, solar and hydropower
(along with "traditional" fuels like firewood and dung), supplied but 7.4% of
global energy in 2004; biofuels added another 0.3%. Meanwhile, fossil fuels -
oil, coal and natural gas - supplied 86% of world energy, nuclear power another
6%. Based on current rates of development and investment, the DoE offers the
following dismal projection: In 2030, fossil fuels will still account for
exactly the same share of world energy as in 2004. The expected increase in
renewables and biofuels is so slight - a mere 8.1% - as to be virtually
meaningless.
In global warming terms, the implications are nothing short of catastrophic:
Rising reliance on coal (especially in China, India and the United States)
means that global emissions of carbon dioxide are projected to rise by 59% over
the next quarter-century, from 26.9 billion metric tons to 42.9 billion tons.
The meaning of this is simple. If these figures hold, there is no hope of
averting the worst effects of climate change.
When it comes to global energy supplies, the implications are nearly as dire.
To meet soaring energy demand, we would need a massive influx of alternative
fuels, which would mean equally massive investment - in the trillions of
dollars - to ensure that the newest possibilities move rapidly from laboratory
to full-scale commercial production; but that, sad to say, is not in the cards.
Instead, the major energy firms (backed by lavish US government subsidies and
tax breaks) are putting their mega-windfall profits from rising energy prices
into vastly expensive (and environmentally questionable) schemes to extract oil
and gas from Alaska and the Arctic, or to drill in the deep and difficult
waters of the Gulf of Mexico and the Atlantic Ocean. The result? A few more
barrels of oil or cubic feet of natural gas at exorbitant prices (with
accompanying ecological damage), while non-petroleum alternatives limp along
pitifully.
A steady migration of power and wealth from energy-deficit to
energy-surplus nations: There are few countries - perhaps
a dozen altogether - with enough oil, gas, coal and uranium (or some
combination thereof) to meet their own energy needs and provide significant
surpluses for export. Not surprisingly, such states will be able to extract
increasingly beneficial terms from the much wider pool of energy-deficit
nations dependent on them for vital supplies of energy. These terms, primarily
of a financial nature, will result in growing mountains of petrodollars being
accumulated by the leading oil producers, but will also include political and
military concessions.
In the case of oil and natural gas, the major energy-surplus states can be
counted on two hands. Ten oil-rich states possess 82.2% of the world's proven
reserves. In order of importance, they are: Saudi Arabia, Iran, Iraq, Kuwait,
the United Arab Emirates, Venezuela, Russia, Libya, Kazakhstan and Nigeria. The
possession of natural gas is even more concentrated. Three countries - Russia,
Iran and Qatar - harbor an astonishing 55.8% of the world supply. All of these
countries are in an enviable position to cash in on the dramatic rise in global
energy prices and to extract from potential customers whatever political
concessions they deem important.
The transfer of wealth alone is already mind-boggling. The oil-exporting
countries collected an estimated $970 billion from the importing countries in
2006, and the take for 2007, when finally calculated, is expected to be far
higher. A substantial fraction of these dollars, yen and euros have been
deposited in sovereign wealth funds (SWFs), giant investment accounts owned by
the oil states and deployed for the acquisition of valuable assets around the
world.
In recent months, the Persian Gulf SWFs have been taking advantage of the
financial crisis in the United States to purchase large stakes in strategic
sectors of its economy. In November 2007, for example, the Abu Dhabi Investment
Authority (ADIA) acquired a $7.5 billion stake in Citigroup, America's largest
bank holding company; in January, Citigroup sold an even larger share, worth
$12.5 billion, to the Kuwait Investment Authority (KIA) and several other
Middle Eastern investors, including Prince Walid bin Talal of Saudi Arabia. The
managers of ADIA and KIA insist that they do not intend to use their
newly-acquired stakes in Citigroup and other US banks and corporations to
influence US economic or foreign policy, but it is hard to imagine that a
financial shift of this magnitude, which can only gain momentum in the decades
ahead, will not translate into some form of political leverage.
In the case of Russia, which has risen from the ashes of the Soviet Union as
the world's first energy superpower, it already has. Russia is now the world's
leading supplier of natural gas, the second largest supplier of oil and a major
producer of coal and uranium. Though many of these assets were briefly
privatized during the reign of Boris Yeltsin, President Vladimir Putin has
brought most of them back under state control - in some cases by exceedingly
questionable legal means.
He then used these assets in campaigns to bribe or coerce former Soviet
republics on Russia's periphery reliant on it for the bulk of their oil and gas
supplies. European Union countries have sometimes expressed dismay at Putin's
tactics, but they, too, are dependent on Russian energy supplies, and so have
learned to mute their protests to accommodate growing Russian power in Eurasia.
Consider Russia a model for the new energy world order.
A growing risk of conflict. Throughout history, major shifts in
power have normally been accompanied by violence - in some cases, protracted
violent upheavals. Either states at the pinnacle of power have struggled to
prevent the loss of their privileged status, or challengers have fought to
topple those at the top of the heap. Will that happen now? Will energy-deficit
states launch campaigns to wrest the oil and gas reserves of surplus states
from their control - the George W Bush administration's war in Iraq might
already be thought of as one such attempt or to eliminate competitors among
their deficit-state rivals?
The high costs and risks of modern warfare are well known and there is a
widespread perception that energy problems can best be solved through economic
means, not military ones. Nevertheless, the major powers are employing military
means in their efforts to gain advantage in the global struggle for energy, and
no one should be deluded on the subject. These endeavors could easily enough
lead to unintended escalation and conflict.
One conspicuous use of military means in the pursuit of energy is obviously the
regular transfer of arms and military-support services by the major
energy-importing states to their principal suppliers. Both the United States
and China, for example, have stepped up their deliveries of arms and equipment
to oil-producing states like Angola, Nigeria and Sudan in Africa and, in the
Caspian Sea basin, Azerbaijan, Kazakhstan and Kyrgyzstan. The United States has
placed particular emphasis on suppressing the armed insurgency in the vital
Niger Delta region of Nigeria, where most of the country's oil is produced;
Beijing has emphasized arms aid to Sudan, where Chinese-led oil operations are
threatened by insurgencies in both the South and Darfur.
Russia is also using arms transfers as an instrument in its efforts to gain
influence in the major oil- and gas-producing regions of the Caspian Sea basin
and the Persian Gulf. Its urge is not to procure energy for its own use, but to
dominate the flow of energy to others. In particular, Moscow seeks a monopoly
on the transportation of Central Asian gas to Europe via Gazprom's vast
pipeline network; it also wants to tap into Iran's mammoth gas fields, further
cementing Russia's control over the trade in natural gas.
The danger, of course, is that such endeavors, multiplied over time, will
provoke regional arms races, exacerbate regional tensions and increase the
danger of great-power involvement in any local conflicts that erupt. History
has all too many examples of such miscalculations leading to wars that spiral
out of control. Think of the years leading up to World War I. In fact, Central
Asia and the Caspian today, with their multiple ethnic disorders and
great-power rivalries, bear more than a glancing resemblance to the Balkans in
the years leading up to 1914.
What this adds up to is simple and sobering: the end of the world as you've
known it. In the new, energy-centric world we have all now entered, the price
of oil will dominate our lives and power will reside in the hands of those who
control its global distribution.
In this new world order, energy will govern our lives in new ways and on a
daily basis. It will determine when, and for what purposes, we use our cars;
how high (or low) we turn our thermostats; when, where, or even if, we travel;
increasingly, what foods we eat (given that the price of producing and
distributing many meats and vegetables is profoundly affected by the cost of
oil or the allure of growing corn for ethanol); for some of us, where to live;
for others, what businesses we engage in; for all of us, when and under what
circumstances we go to war or avoid foreign entanglements that could end in
war.
This leads to a final observation: the most pressing decision facing the next
president and Congress may be how best to accelerate the transition from a
fossil-fuel-based energy system to a system based on climate-friendly energy
alternatives.
Michael T Klare is a professor of peace and world security studies at
Hampshire College and the author of Resource Wars and Blood and
Oil. Consider this essay a preview of his newest book,
Rising Powers, Shrinking Planet: The New Geopolitics of Energy, which
has just been published by Metropolitan Books.
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