It's official - cheap oil era is over
By Michael T Klare
Every summer, the Energy Information Administration of the US Department of
Energy issues its International Energy Outlook (IEO), a jam-packed compendium
of data and analysis on the evolving world energy equation. For those with the
background to interpret its key statistical findings, the release of the IEO
can provide a unique opportunity to gauge important shifts in global energy
trends, much as reports of routine communist party functions in the party
journal Pravda once provided America's Kremlin watchers with insights into
changes in the Soviet Union's top leadership circle.
As it happens, the recent release of the 2009 IEO has provided energy watchers
with a feast of significant revelations. By far the most significant
disclosure: the IEO predicts a sharp drop in projected future world oil output
(compared with previous expectations) and a corresponding increase in reliance
on what
are called "unconventional fuels" - oil sands, ultra-deep oil, shale oil and
biofuels.
So here's the headline for you: for the first time, the well-respected EIA
appears to be joining with those experts who have long argued that the era of
cheap and plentiful oil is drawing to a close. Almost as notable, when it comes
to news, the 2009 report highlights Asia's growing demand for energy and
suggests that China is moving ever closer to the point at which it will
overtake the United States as the world's number one energy consumer. Clearly,
a new era of cutthroat energy competition is on us.
Peak Oil becomes the new norm
As recently as 2007, the IEO projected that the global production of
conventional oil (the stuff that comes gushing out of the ground in liquid
form) would reach 107.2 million barrels per day in 2030, a substantial increase
from the 81.5 million barrels produced in 2006.
Now, in 2009, the latest edition of the report has grimly dropped that
projected 2030 figure to just 93.1 million barrels per day - in future-output
terms, an eye-popping decline of 14.1 million expected barrels per day.
Even when you add in the 2009 report's projection of a larger increase than
once expected in the output of unconventional fuels, you still end up with a
net projected decline of 11.1 million barrels per day in the global supply of
liquid fuels (when compared with the IEO's soaring 2007 projected figures).
What does this decline signify - other than growing pessimism by energy experts
when it comes to the international supply of petroleum liquids?
Very simply, it indicates that the usually optimistic analysts at the
Department of Energy now believe global fuel supplies will simply not be able
to keep pace with rising world energy demands. For years now, assorted
petroleum geologists and other energy types have been warning that world oil
output is approaching a maximum sustainable daily level - a peak - and will
subsequently go into decline, possibly producing global economic chaos.
Whatever the timing of the arrival of peak oil's actual peak, there is growing
agreement that we have, at last, made it into peak-oil territory, if not yet to
the moment of irreversible decline.
Until recently, Energy Information Administration officials scoffed at the
notion that a peak in global oil output was imminent or that we should
anticipate a contraction in the future availability of petroleum any time soon.
"[We] expect conventional oil to peak closer to the middle than to the
beginning of the 21st century," the 2004 IEO report stated emphatically.
Consistent with this view, the Energy Information Administration reported one
year later that global production would reach a staggering 122.2 million
barrels per day in 2025, more than 50% above the 2002 level of 80.0 million
barrels per day. This was about as close to an explicit rejection of peak oil
that you could get from the Energy Information Administration's experts.
Where did all the oil go?
Now, let's turn back to the 2009 edition. In 2025, according to this new
report, world liquids output, conventional and unconventional, will reach only
a relatively dismal 101.1 million barrels per day. Worse yet, conventional oil
output will be just 89.6 million barrels per day. In Energy Information
Administration terms, this is pure gloom and doom, about as deeply pessimistic
when it comes to the world's future oil output capacity as you're likely to
get.
The agency's experts claim, however, that this will not prove quite the
challenge it might seem because they have also revised downward their
projections of future energy demand. Back in 2005, they were projecting world
oil consumption in 2025 at 119.2 million barrels per day, just below
anticipated output at that time. This year - and we should all theoretically
breathe a deep sigh of relief - the report projects that 2025 figure at only
101.1 million barrels per day, conveniently just what the world is expected to
produce at that time. If this actually proves the case, then oil prices will
presumably remain within a manageable range.
In fact, the consumption part of this equation seems like the less reliable
calculation, especially if economic growth continues at anything like its
recent pace in China and India. Indeed, all evidence suggests that growth in
these countries will resume its pre-crisis pace by the end of 2009 or early
2010. Under those circumstances, global oil demand will eventually outpace
supply, driving up prices again and threatening recurring and potentially
disastrous economic disorders - possibly on the scale of the present global
economic meltdown.
To have the slightest chance of averting such disasters means seeing a sharp
rise in unconventional fuel output. Such fuels include Canadian oil sands,
Venezuelan extra-heavy oil, deep-offshore oil, Arctic oil, shale oil, liquids
derived from coal (coal-to-liquids or CTL), and biofuels. At present, these
cumulatively constitute only about 4% of the world's liquid fuel supply but are
expected to reach nearly 13% by 2030. All told, according to estimates in the
new IEO report, unconventional liquid production will reach an estimated 13.4
million barrels per day in 2030, up from a projected 9.7 million barrels in the
2008 edition.
But for an expansion on this scale to occur, whole new industries will have to
be created to manufacture such fuels at a cost of several trillion dollars.
This undertaking, in turn, is provoking a wide-ranging debate over the
environmental consequences of producing such fuels.
For example, any significant increase in biofuels use - assuming such fuels
were produced by chemical means rather than, as now, by cooking - could
substantially reduce emissions of carbon dioxide and other greenhouse gases,
actually slowing the tempo of future climate change. On the other hand, any
increase in the production of Canadian oil sands, Venezuelan extra-heavy oil,
and Rocky Mountain shale oil will entail energy-intensive activities at
staggering levels, sure to emit vast amounts of CO2, which might more than
cancel out any gains from the biofuels.
In addition, increased biofuels production risks the diversion of vast tracts
of arable land from the crucial cultivation of basic food staples to the
manufacture of transportation fuel. If, as is likely, oil prices continue to
rise, expect it to be ever more attractive for farmers to grow more corn and
other crops for eventual conversion to transportation fuels, which means rises
in food costs that could price basics out of the range of the very poor, while
stretching working families to the limit. As in May and June of 2008, when food
riots spread across the planet in response to high food prices - caused, in
part, by the diversion of vast amounts of corn acreage to biofuel production -
this could well lead to mass unrest and mass starvation.
A heavy energy footprint
The geopolitical implications of this transformation could well be striking.
Among other developments, the global clout of Canada, Venezuela, and Brazil -
all key producers of unconventional fuels - is bound to be strengthened.
Canada is becoming increasingly important as the world's leading producer of
oil sands, or bitumen - a thick, gooey, viscous material that must be dug out
of the ground and treated in various energy-intensive ways before it can be
converted into synthetic petroleum fuel (synfuel). According to the IEO report,
oil sands production, now at 1.3 million barrels a day and barely profitable,
could hit the 4.4 million barrel mark (or even, according to the most
optimistic scenarios, 6.5 million barrels) by 2030.
Given the IEA's new projections, this would represent an extraordinary addition
to global energy supplies just when key sources of conventional oil in places
like Mexico and the North Sea are expected to suffer severe declines. The
extraction of oil sands, however, could prove a pollution disaster of the first
order. For one thing, remarkable infusions of old-style energy are needed to
extract this new energy, huge forest tracts would have to be cleared, and vast
quantities of water used for the steam necessary to dislodge the buried goo
(just as the equivalent of "peak water" may be arriving).
What this means is that the accelerated production of oil sands is sure to be
linked to environmental despoliation, pollution, and global warming. There is
considerable doubt that Canadian officials and the general public will, in the
end, be willing to pay the economic and environmental price involved. In other
words, whatever the IEA may project now, no one can know whether synfuels will
really be available in the necessary quantities 15 or 20 years down the road.
Venezuela has long been an important source of crude oil for the United States,
generating much of the revenue used by President Hugo Chavez to sustain his
social experiments at home and an ambitious anti-American political agenda
abroad. In the coming years, however, its production of conventional petroleum
is expected to fall, leaving the country increasingly reliant on the
exploitation of large deposits of bitumen in the eastern Orinoco River basin.
Just to develop these "extra-heavy oil" deposits will require significant
financial and energy investments and, as with Canadian oil sands, the
environmental impact could be devastating. Nevertheless, successful development
of these deposits could prove an economic bonanza for Venezuela.
The big winner in these grim energy sweepstakes, however, is likely to be
Brazil. Already a major producer of ethanol, it is expected to see a huge
increase in unconventional oil output once its new ultra-deep fields in the
"subsalt" Campos and Santos basins come on-line. These are massive offshore oil
deposits buried beneath thick layers of salt some 160 kilometers off the coast
of Rio de Janeiro and several kilometers beneath the ocean's surface.
When the substantial technical challenges to exploiting these undersea fields
are overcome, Brazil's output could soar by as much as three million barrels
per day. By 2030, Brazil should be a major player in the world energy equation,
having succeeded Venezuela as South America's leading petroleum producer.
New powers, new problems
The IEO report hints at other geopolitical changes occurring in the global
energy landscape, especially an expected stunning increase in the share of the
global energy supply consumed in Asia and a corresponding decline by the United
States, Japan, and other "First World" powers. In 1990, the developing nations
of Asia and the Middle East accounted for only 17% of world energy consumption;
by 2030, that number, the report suggests, should reach 41%, matching that of
the major First World powers.
All recent editions of the report have predicted that China would eventually
overtake the United States as number one energy consumer. What's notable is how
quickly the 2009 edition expects that to happen. The 2006 report had China
assuming the leadership position in a 2026-2030 timeframe; in 2007, it was
2021-2024; in 2008, it was 2016-2020. This year, the Energy Information
Administration is projecting that China will overtake the United States between
2010 and 2014.
It's easy enough to overlook these shifting estimates, since the reports don't
emphasize how they have changed from year to year. What they suggest, however,
is that the US will face ever fiercer competition from China in the global
struggle to secure adequate supplies of energy to meet national needs.
Given what we have learned about the dwindling prospects for adequate future
oil supplies, we are sure to face increased geopolitical competition and strife
between the two countries in those few areas that are capable of producing
additional quantities of oil (and undoubtedly genuine desperation among many
other countries with far less resources and power).
And much else follows: as the world's leading energy consumer, Beijing will
undoubtedly play a far more critical role in setting international energy
policies and prices, undercutting the pivotal role long played by Washington.
It is not hard to imagine, then, that major oil producers in the Middle East
and Africa will see it as in their interest to deepen political and economic
ties with China at the expense of the United States. China can also be expected
to maintain close ties with oil providers like Iran and Sudan, no matter how
this clashes with American foreign policy objectives.
At first glance, the IEO for 2009 hardly looks different from previous
editions: a tedious compendium of tables and text on global energy trends.
Looked at another way, however, it trumpets the headlines of the future - and
their news is not comforting.
The global energy equation is changing rapidly, and with it is likely to come
great power competition, economic peril, rising starvation, growing unrest,
environmental disaster, and shrinking energy supplies, no matter what steps are
taken. No doubt the 2010 edition of the report and those that follow will
reveal far more, but the new trends in energy on the planet are already
increasingly evident - and unsettling.
Michael T Klare is a professor of peace and world security studies at
Hampshire College in Amherst, Massachusetts, and the author, most recently, of
Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt).
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
