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4 Oil,
politics and resource wars By
Lars Schall
At the 10th conference of the
Association for the Study of Peak Oil & Gas in
Vienna, Austria, Dr Robert Hirsch, Professor
Michael T Klare, Dr Karin Kneissl, Dr Daniele
Ganser, and Jeremy Gilbert discussed for Asia
Times Online and Matterhorn Asset MGMT different
important aspects of oil .
Robert
Hirsch: Chaos is going to occur just because
of the announcement that Peak Oil is real.
Hirsch is a senior energy program advisor
at Science Applications International Corporation,
a senior energy advisor at MISI, and a consultant
in energy, technology, and management. He is a
former manager of Petroleum Exploratory Research
at Exxon and
assistant administrator
of the US Energy Research and Development
Administration responsible for renewables. (See
end for full biographies)
Lars
Schall: Mr Hirsch, in 2005 you were given
the task to come up with a report related to Peak
Oil. How did this came about?
Robert
Hirsch: It came about because I did an
analysis to look at the big problems that energy
research and development should look into in the
future, and I came across something called Peak
Oil. Even though I have worked in the oil industry
for many years, I'd never heard of Peak Oil. I
started to dig deeper and deeper into it, and the
deeper I got the more difficult and dangerous the
concept was.
I knew that oil was a finite
resource, I knew that you can only get so much out
so fast. I had been in that part of the business,
and when I thought about what that could do to
economies worldwide it frightened me. What I did
was then that I went to a laboratory of the US
Department of Energy and said, the problem looks
like it's real, when it hits we clearly have to do
something about it, please give us some money, me
and two colleagues, to be able to look into it and
see the best we can do to in way of mitigating the
problem. So I proposed the study to the
government, the laboratory I was working with
provided the funding, and then we did the study
that we did. [1]
LS: And
what did the government do with the study?
RH: As we worked through the
study we coordinated with people at the
laboratory, and we got their ideas, and we told
them about the content of the study and so forth -
so they were aware of what was happening. When we
handed in the final report in they were shocked,
and they were shocked because it made sense and
because it indicated that to fix that problem it
would take a huge amount of money and a
significant period of time. This is not a problem
that you could fix quickly.
They didn't
knew what to do with the study because they were
frightened. It turns out that the person who was
the director of the laboratory was retiring, and
she said: "I'll sign the report." She signed the
report, but they tried to bury it. But then people
in the Internet found the report and it was then
made public.
LS: Is the fact
that the US government is afraid of Peak Oil also
the reason why it never talked about the problem
during the administration of George W Bush really
in public, even though they had this Energy Task
Force in spring of 2001 where they looked into it
because [then vice president] Richard Cheney was
for sure aware of it?
RH:
When somebody in authority stands up and says to
the world that Peak Oil is real and that we have
to deal with it, chaos is going to occur just
because of the announcement. People will get
frightened, they will start hoarding gasoline,
they will begin what they did before, which is to
tap-off their gasoline tanks and their
automobiles, and that will pull the system dry and
give you shortages immediately; businesses will
revise their plans and become much more defensive,
stock markets will see the uncertainty and
undoubtedly will drop dramatically.
There
will be chaos when someone of significance stands
up and says that there is a problem. My assumption
is that whoever does that, if it happens, they
will also say what they or their company is going
to do to mitigate the problem and minimize the
loss of business that will be associated with
whoever or whatever organization is involved.
LS: Another part of the
equation are the big oil majors. How are they
dealing with the problem, because it endangers
their business model?
RH:
The major oil companies with one exception have
denied that the problem exists. One has to wonder
why? The answer probably is because it would
create chaos and cause them trouble in what they
are doing now. My view is that of the things that
can be done to mitigate, to provide oil from other
sources - heavy oil, coal to liquids, gas to
liquids - the major oil companies will be the
companies that will best be able to build the
plants, the production facilities that are
involved, because they know how to do that kind of
thing, they have that expertise.
So they
may suffer from a short-term hit in terms of how
their stocks are viewed, but they also will
benefit, because the oil that they have will be
worth much more, also because they have the
capability to build the mitigation plants that
will be necessary to get us out of the immediate
problem. It won't happen quickly, it will happen
over time.
LS: In your study
have you run into the problem related to reserves?
There is a huge uncertainty with regards to the
different types of reserves and the connected
secrecy.
RH: The reserves
problem is a very complicated one, and that's why
it took me personally a number of years to work
through and develop the understanding that I have
today. There are a number of organizations that
are lying, outright lying, about their reserves
for their own political purposes. That's true also
with some countries in the Organization of
Petroleum Exporting Countries [OPEC]. I think
there is very, very little question about that.
Moreover, there are other countries and companies
that are not very good, and so they are not making
not very good estimates, and if you are not going
to make a good estimate you might do it rather on
the high side rather than on the low side because
people like to hear a larger number.
The
reserves that different companies have are company
secrets. The information is kept very much for
themselves. There are outside organizations and
individuals that have tried to analyze and
determine what reasonable reserves are with the
countries or companies that are involved, and I
think some reasonable estimates have been made,
but they are not perfect. Even at that, when you
would go in and look within a company, there are
some that are better able to make good reserve
numbers and there are others that are just
technically not able to do a very good job. So it
is squishy.
LS: Related to
Peak Oil you believe this is rather a liquid fuel
problem and not an energy problem. Why so?
RH: There is something like
$50 trillion to $100 trillion of capital equipment
worldwide that is built to operate on liquid fuels
- and I am talking about cars, busses, ships,
trains, airplanes, and golfcarts. You don't
quickly convert those or replace them,
particularly if the problem takes place in a
worldwide recession - there is less money
available, governments are already weakened
because of the present recession, governments will
not be able to afford to do this kind of a thing.
So it's going to be very difficult and it
is going to take a considerable amount of time to
either convert an existing piece of equipment to
operate on something else or to build a whole new
one and have it put into operation, because what
we are talking about is a scale that is absolutely
enormous as far as the world is concerned.
LS: You are personally
investing in gold, and the reason for this is
called inflation. You are also comparing what we
are facing in the near future according to your
analysis and what has happened in 1973/74. Can you
bring both things together for us, please?
RH: I look at history
because there are often parallels to what may
happen in the future, and if you don't pay
attention to history you are doomed to relive it,
as has been said. Looking at 1973/74, even though
the economic circumstances were different then in
many ways, in other ways they are not. People are
the same, and we react the way we react. And most
people, I believe, understand how we all react -
we don't like bad news, we tend to ignore problems
until they hit us directly.
What happened
in 1973/74, I think, provides guidance as to what
is likely to happen again because it will be
largely a human reaction that will affect not only
people but economies and businesses and
international trade, and so forth. So I believe
looking at what happened back then, when there
really was a shortage, not just a spike in prices,
there was a real shortage, that you can gain a
good deal of understanding as to what is going to
happen when this thing hits in the near future.
LS: Related to the pricing
of oil do you think that there will be changes?
For example, you are surely aware that India and
Iran are doing their dealings in gold.
RH: Probably changes will
occur. But it is very difficult for me - knowing
what I know and looking at what economists know -
to forecast such things. I think many different
things are likely to happen. No one should be
surprised that changes occur. I tend to look at
things from a fundamental point of view of how
much material is there and what it takes in terms
of human activity to take whatever material we are
talking about and bring liquid fuels to a point
where consumers can use it.
So I tend to
look at that problem, and problems of changes in
finance and inflation associated with one currency
that is stronger than another and so forth, those
things will damp out in my opinion over time. They
will have short-term effects that could be
significant, which can either help or hurt some of
the people involved, but they are not as
fundamental as the fact that we are dealing with a
limited resource
LS: Okay,
we have a limited resource, but then again we have
almost unlimited money creation. Doesn't this
cause a little problem?
RH:
That goes back to your earlier question. If you
print a lot of money you are inherently going to
have inflation, and in inflationary times people
in the past have gone to gold as a hedge, as
something that is limited, that you can't print,
that has value, and that has happened many, many
times over the years. Therefore, I believe that to
protect assets that I have I need to have some of
my assets in gold.
LS: Off
the record you have already told me that you have
a problem with the term "Peak Oil". Why?
RH: I have a problem with
that term because it implies a sharp peak, like a
top of a mountain, an inverted V, and it has the
connotation that after that occurs there would be
disaster. The term I like better is "The Onset of
the Decline of World Oil Production", because what
happened is that we had a little peak already that
people call the peak of conventional oil
production, and yet nothing terrible has happened.
It's a tiny peak. It's almost imperceivable
looking at graphs. So I have trouble with the term
"Peak Oil" because it implies imminent disaster,
whereas the term "The Onset of the Decline of
World Oil Production" is longer, it has more
words, but is in fact a much better indicator of
the unset of serious problems.
Michael T Klare: The control
over the global flow of oil is the 21st century
equivalent of nuclear supremacy in the 20th
century
Klare is the Five College
Professor of Peace and World Security Studies (a
joint appointment at Amherst College, Hampshire
College, Mount Holyoke College, Smith College, and
the University of Massachusetts at Amherst). His
books include The Race for What's Left: The
Global Scramble for the World's Last Resources
and Rising Powers, Shrinking Planet: The New
Geopolitics of Energy.
Lars
Schall: Michael Klare, why are oil and
geopolitics so close aligned?
Michael Klare: It began
because oil is crucial for warfare, that was how
the link with geopolitics began, and this happened
during World War I. When oil-powered weapons first
made their appearance on the battlefield with
oil-powered tanks, airplanes, submarines, and war
ships it proved decisive in many ways, and
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