Peak Oil: a Survey of Security Concerns

ENERGY VISIONARY SERIES Istockphooto 2008. A silhoutte of three pumpjacks. SEPTEMBER 2008 Peak Oil: WORKING PAPER A Survey of Security Concerns By Neil King, Jr. TABLE OF CONTENTS Introduction 5 A Superpower Turned Supplicant 7 Looking Forward, Looking Back 9 Under Pressure: Global Trade 10 And To A Few, Increasing Power 11 Mexico’s Slide: An Early Warning 12 At the Pentagon, A Belated Awakening 13 Next Up, Resource Wars? 14 The World at Peak: Taking the Dim View 15 WORKING PAPER INTRODUCTION he world faces an energy Whether the world now faces a lasting oil-supply crunch is a debate that echoes across the Web Tchallenge more dire than at any and dominates oil gatherings from Abu Dhabi to time in recent history. Oil prices have London. Has the world passed the all-time peak in oil production, as the growing peak oil crowd shot to record levels over the last year believes? Or is the dramatic run-up in prices over the last several years simply a historical anoma- not due to some political upheaval, ly—a big bump in a road that will soon fl atten out? as with the 1973 Arab oil embargo, Many of the biggest names in the oil industry now agree on one point: Th at whatever the ulti- nor because of war and strife, as after mate cause—be it political, geological or a mix of the 1979 Iranian Revolution and both—the world is now entering a new era of high energy costs and constrained supplies. Just as 1908 the ensuing Iran-Iraq war. Deeper marked the birth of the Model T and the advent of the automotive age, historians may one day mark and more fundamental forces are 2008 as the beginning of the end of the age of petroleum. driving prices this time, ranging from Th e evidence is strong that this period is not a blip. galloping demand in Asia and the John Hess, the taciturn chief executive of Hess Middle East to the skyrocketing costs Oil, made a particularly gloomy case earlier this year for why, as he said, “an oil crisis is coming.”1 and complications to discover and Demand growth around the world is unrelenting, and has abated only slightly as prices have soared develop new oil basins. to unimagined highs. But more to the point, he said, is that the industry isn’t investing enough to surmount the many challenges on the supply side. As a result, oil supply capacity could hit its ceiling by 2015. Others argue that the shortfall could come much sooner. Th e purpose of this paper is not to argue whether the world is about to hit its oil-production limit. Th e long-running feud over peak oil remains heated and unsettled, with whole armies of geolo- gists, oil executives and statisticians blasting away from either side. Instead, the aim here is to take the evidence of real trouble ahead, and to explore what strains it may impose on the world’s existing architecture. Evidence of the coming turbulence is not hard to fi nd. Th e world’s two foremost energy forecasting | 5 Peak Oil: SEPTEMBER 2008 A Survey of Security Concerns shops, the U.S. Energy Information Administration way of life—its restlessness, its mobility, its reliance (EIA) and the Paris-based International Energy on sustained economic growth and expansion— Agency (IEA), are both dropping their habitual may literally begin running short of fuel. optimism and assuming a much darker view of the challenges ahead. Th e IEA in November will Th e ramifi cations of a sustained supply shortfall, release its fi rst-ever comprehensive study of the if it comes, will be massive and wide-ranging. world’s oil supplies, and its conclusions are said Economists are just beginning to examine the to be chilling. A vast portion of the oil fi elds that dramatic changes the U.S. economy and the global fuel the world’s cars, trucks, airplanes and ships trading system will experience if oil prices con- tinue to notch ever higher. Th e average cost of a barrel of oil has crept up about $12 every year since “Many of the biggest 2003. Last year it averaged around $72 a barrel, a fi gure which this year is all but certain to remain names in the oil industry over $100. What this summer has clearly shown is that oil at $150 a barrel or more would force now agree on one point: wrenching changes in the United States, where planners would face the challenge of having to Th at whatever the reverse a half century of development and sprawl ultimate cause -- be it built entirely around the automobile. political, geological or a Far less understood, though, are the equally sweep- ing national security challenges that will multiply mix of both -- the world as the impact of sky-high oil prices ripples through international capitals. is now entering a new era Th e current world order has been built on cheap of high energy costs and and abundant oil more than any other commodity. Without it, the United States could not have estab- constrained supplies.” lished a global military posture reaching from the shores of Italy to the Pacifi c outpost of Guam. Nor would the world have seen the breakneck industri- are now growing tired and depleting rapidly. alization and economic growth of the last century, Th at depletion rate means that around the world, much of it driven literally by the U.S. model of oil companies every year must bring onstream upward mobility and individual consumption. Oil, nearly the equivalent of all of America’s annual oil and the need to protect it, secure it, or fi ght over production just to keep even. Many big producing it, have fi gured prominently in nearly every major countries, Norway and Mexico among them, are war of the modern age. now in permanent decline. Th ose impulses will only increase in an age of Th e problem the world faces can be summed up in scarcity—and with a cast of players far more a simple phrase: its supplies of oil are old and rap- complicated than during any earlier energy crisis. idly aging, while demand for that oil is young and At the end of the Second World War, as the only rapidly growing. For the fi rst time since the rise of real industrialized powers, the United States and modern capitalism, our society and its engrained Europe jockeyed over control of the oil riches of 6 | WORKING PAPER the Middle East. By 1973, when the West got its infrastructure. But it did not entertain the threat of fi rst oil scare, the United States still produced a an enduring supply crimp. sixth of the world’s oil and consumed almost twice as much every day as did all of Asia, including Th e group has also conducted several war games to Australia, China, India, and Japan. weigh the grim ripple eff ects of sudden instability in the Caspian, or an Iranian decision to curtail its Th e picture now is dramatically diff erent. Th e oil exports in retaliation over Western economic United States last year produced just eight percent sanctions. One such “Oil Shockwave” exercise, of the world’s oil, while the booming economies conducted in November 2007, contemplated how of Asia consumed more crude than the United those very geopolitical disruptions could drive oil States, Canada, and Mexico combined. And the to nearly $140 per barrel by July 2008. As it turns United States and Europe are now competing for out, far less dramatic but more fundamental forc- new pockets of oil from West Africa to the Arctic es—a slipping U.S. dollar, rising Chinese demand, against equally hungry actors from China, India, shrinking global spare capacities for crude pro- Malaysia, Brazil, Russia, and Korea. Th e Seven duction—ended up propelling crude prices higher Sisters have multiplied into a cacophonous crowd than those foreseen by the blue-ribbon panel. U.S. of large and small companies, some private, some car companies, airlines and other industries have state-owned. And it is the state-owned ones, the paid far less attention to signs of a coming supply big national oil companies like Saudi Aramco and crimp that is already forcing painful changes. Russia’s Gazprom, which will grip the oil nozzle the tightest in the decades to come. Th e United States, more than any other country, is still in the denial phase when it comes to under- A Superpower Turned Supplicant standing the potential seriousness of limited oil supplies going forward. As oil prices soared this Th e threat of systemic supply shortages has been summer, Congress pursued a lengthening rogue’s strikingly slow to seep into offi cial thinking list of culprits to carry the blame. Topping that in Washington. Th e traditional national secu- list were Big Oil, the 13 member states of OPEC, rity crowd has remained focused on the usual Saudi Arabia itself, and myriad fi nancial players menu of concerns—Islamic extremism, Iran, the and speculators. Republicans have championed the Palestinians, a belligerent Russia, Darfur, lately need to open all of America’s territorial waters to even global warming—but with almost no atten- off shore drilling, while both parties wave the grail tion given to the oil question. When the issue of energy independence. Underlying all this is the has received some brief focus, it has usually been deep sense that the U.S. way of life is under attack, glancing and diluted by assumptions that now and that something should and can be done to appear questionable.

Load more