Diminishing Marginal Utility

Source: The Wall Street Journal

By Keith Johnson

Here’s an intriguing thought: Global oil supplies are indeed set to peak within a few years, and no, that is not bullish for oil. Quite the contrary—it will spell the end of the “oil age.”

That’s the take from Deutsche Bank’s new report, “The Peak Oil Market.” In a nutshell: The oil industry chronically under invests in finding new supplies, exemplified both by Big Oil’s recent love of share buybacks and under-investment by big oil-producing nations. That spells a looming supply crunch.

That will send oil to $175 a barrel by 2016—and will simultaneously put the final nail in oil’s coffin and send prices plummeting back to $70 by 2030. That’s because there’s an even more important “peak” moment on the horizon: A global peak in oil demand. That has already begun in the world’s biggest oil-consuming nation, Deutsche Bank notes:

US demand is the key. It is the last market-priced, oil inefficient, major oil consumer. We believe Obama’s environmental agenda, the bankruptcy of the US auto industry, the war in Iraq, and global oil supply challenges have dovetailed to spell the end of the oil era.

The big driver? The coming-of-age of electric and hybrid vehicles, which promise massive fuel-economy gains for short-hop commuting but which so far have not been economic.

Deutsche Bank expects the electric car to become a truly “disruptive technology” which takes off around the world, sending demand for gasoline into an “inexorable and accelerating decline.”

In 2020, the bank expects electric and hybrid vehicles to account for 25% of new car sales—in both the U.S. and China. “We expect [electric propulsion] will reverse the dynamics of world oil demand, and spell the end of the oil age,” the bank writes.

But won’t cheaper oil in the future just lead to a revival in oil demand? That’s what’s happened in every other cycle. Au contraire, says the bank: Just as the explosion of digital cameras made the cost of film irrelevant, the growth of electric cars will make the price of oil (and gasoline) all but irrelevant for transportation.

In a report filled with interesting tidbits, one in particular stands out: The cost of the Iraq war at the pump. Deutsche Bank figures the cost of the war at $1.5 trillion. Amortized over 20 years, that works out to $75 billion a year. “If the US government taxed US gasoline consumers purely to reflect the financial cost of the war in Iraq, gasoline prices should be some 54 cents per gallon higher,” the report notes.

Posted by Hugo Albert Orwell at 11:17 AM | Permalink | TrackBacks (0)

Source: Associated Press

Monday October 15, 1:03 pm ET
By John Wilen, AP Business Writer
Crude Prices Surge As OPEC Estimates Supplies Are Falling While Demand Is Growing

NEW YORK (AP) -- Oil prices surged above $85 a barrel Monday for the first time after OPEC said crude production by non-member countries is likely falling even as global demand for oil is rising.

Prices were also supported by concerns Turkish forces will pursue Kurdish rebels into Iraq, disrupting oil supplies, and by technical buying by investment funds.

Despite the Organization of Petroleum Exporting Countries' decision last month to boost its production by 500,000 barrels per day beginning next month, the rest of the world will likely produce 110,000 fewer barrels of oil per day than expected in the fourth quarter, OPEC said in a report.

At the same time, fourth quarter demand for crude oil will grow by 100,000 barrels a day over last year, OPEC said.

The estimates add to sentiment that crude supplies are tight. Last week, the Energy Department reported that domestic crude inventories fell during the week ended Oct. 5 when they had been expected to rise. And the International Energy Agency concluded that oil inventories held by the world's largest industrialized countries have fallen below a five-year average.

"The fact that U.S. crude inventories fell yet again ... reinforced the market's underlying concern that demand has yet to slow down sufficiently to allow stocks to build, while supply is also perceived to be struggling to catch up," wrote Edward Meir, an analyst at MF Global UK Ltd., in a research note.

Light, sweet crude for November delivery rose $1.72 to $85.41 on the New York Mercantile Exchange after rising as high as $85.49, a record trading price.

Despite the gains, oil is still below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

In other Nymex trading, gasoline futures rose 4.97 cents to $2.1348 a gallon, while heating oil futures rose 3.95 cents to $2.2859 a gallon.

Nymex natural gas futures rose 34 cents to $7.314 per 1,000 cubic feet on forecasts for cooler weather next week in the Northeast and Midwest, and on worries a storm in the Caribbean Sea will move north and develop in strength, threatening key oil and gas infrastructure in the Gulf of Mexico.

In London, Brent crude futures rose $1.61 to $82.16 a barrel on the ICE Futures exchange.

At the pump, gas prices fell 0.4 cent overnight to a national average of $2.757 a gallon, according to AAA and the Oil Price Information Service.

The Turkish government's decision on Monday to ask Parliament for permission to pursue Kurdish rebels into Iraq stoked worries that hostilities will disrupt oil supplies, analysts said.

"Oil out of the northern (Iraq) fields has been erratic for some time," said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. "But complete disruption would definitely be bullish for this market."

Technical buying by investment funds is also driving oil's record run, analysts say. Data released Friday show that speculative buying of oil contracts increased last week.

Many investment funds automatically buy or sell oil futures when prices hit certain levels. In recent days, as oil has pushed into new record territory, several of these resistance prices levels have been broached. That triggers new buying, driving prices even higher.

"Funds tend to trade more on the technicals," Rafield said.

Associated Press Writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.

Posted by Hugo Albert Orwell at 03:21 PM | Permalink | TrackBacks (0)

Source: New York Times

A Quest for Energy in the Globe’s Remote Places

Photo by Geir Jenssen: A natural gas cargo ship passing Melkoya Island, across the bay from Hammerfest, Norway. Gas from this region is to start crossing the ocean, feeding into pipelines for America’s East Coast.

HAMMERFEST, Norway — For a quarter-century, energy executives were tantalized by vast quantities of natural gas in one of the world’s least hospitable places — 90 miles off Norway’s northern coast, beneath the Arctic Ocean.

Bitter winds and frequent snowstorms lash the region. The sun disappears for two months a year. No oil company knew how to operate in such a harsh environment.

But Norway has finally solved the problem. The other day, on an island just offshore, a giant yellow flame illuminated the sky here. It was just a temporary flare for excess gas, but it signaled a new era in energy production.

Across the bay from this small fishing town, where reindeer wander the streets, one of the world’s most advanced natural gas plants is coming to life.

Within weeks, gas will start crossing the ocean in specially designed ships, feeding into the pipeline network for the American East Coast. Before Christmas, furnaces in Brooklyn and stoves in Washington will be burning the gas. It will be the first commercial energy production from waters north of the Arctic Circle.

As global demand soars and prices rise, energy companies are going to the ends of the earth to find new supplies.

In Kazakhstan, petroleum engineers are braving wild temperature swings in the shallow waters of the Caspian Sea to tap the biggest oil discovery of the last 30 years. They are drilling wells six miles deep in the Gulf of Mexico. And on the island of Sakhalin, off far eastern Russia, they have drilled horizontal wells through miles of rock to produce oil from a stretch of ocean notable for giant icebergs.

But as the industry extends its reach, the quest is becoming more arduous. The cost of producing new oil and gas is rising fast, and companies are troubled by worsening delays. Drilling rigs are scarce. Engineers, geologists and petroleum specialists are in critically short supply.

And the politics of oil and gas are getting trickier, with producing countries demanding a bigger share of the revenue and growing angry about project delays that postpone their payments.

Industry executives say their ability to keep up with global demand is badly strained.

“We’re facing bigger risks and bigger difficulties when we go into new frontier regions,” said Odd A. Mosbergvik, a senior manager at the dominant Norwegian energy company, StatoilHydro. “But this is why the oil industry is for big boys. It’s a big gamble.”

The industry’s new reach is shifting the economics of energy extraction. According to a recent study, discovery and development costs, a key indicator for the industry, tripled from 1999 to 2006, to nearly $15 a barrel.

Last year alone, companies spent $200 billion developing new energy projects worldwide, according to the study by the consulting firms John S. Herold Inc. and Harrison Lovegrove — an amount larger than the economies of 147 countries.

These higher costs mean that the industry needs higher energy prices to finance new projects. They are also constraining its ability to expand quickly.

“There are no easy barrels left,” said J. Robinson West, chairman of PFC Energy, an industry consulting firm in Washington. “The only barrels are going to be the tough barrels.”

There is plenty of oil and gas still in the ground, energy executives say. But global consumption is rising so fast that they must keep looking for new sources. Despite worldwide concern over global warming and the role of fossil fuels in causing it, United States government specialists project that global oil and gas demand will increase by some 50 percent in the next 25 years.

At the same time, the big discoveries of the last three decades, like those in the North Sea and on the North Slope of Alaska, are drying up. This is leading oil companies to remote places like Hammerfest.

The United States will need to import about a fifth of the natural gas it uses by 2030, mostly in a liquefied form shipped across the seas in tankers. Such imports are expected to swell more than sixfold from 2005 to 2030, according to the Energy Information Administration. And consumption is rising fast in the economically booming Asian countries.

Producing oil and gas in polar regions is not entirely new, of course. Russian engineers have been doing it in Siberia for decades, with mixed results, and Alaska’s North Slope was long the most important United States oil field.

But those fields are on land. The Norwegian field is the first Arctic project to tap oil and gas reserves far offshore, in water more than 1,000 feet deep, where traditional exploration methods would be too costly.

The gas field, 340 miles north of the Arctic Circle beneath a stretch of ocean more commonly known as the Barents Sea, is called Snow White — Snohvit in Norwegian, where energy projects are named after mythical characters. Though the field was discovered in 1981, oil executives long considered Snohvit out of reach, because of the Barents Sea’s shifting ice packs, brutal waves and extreme cold.

“This is considered an unfriendly place, even by Norwegian standards,” Mr. Mosbergvik said.

Another big problem the engineers faced here was that Snohvit is situated hundreds of miles from Norway’s traditional pipeline network.

Over the years, Statoil considered many ways to get at the gas, including huge offshore platforms armored against the waves, but discarded them as too costly. Building a vast undersea pipeline that would take the gas south along the country’s stretched coastline was also out of the question.

Statoil engineers eventually came up with an ingenious solution. They installed production equipment directly on the seafloor, with no rigs breaking the surface. The wellheads are linked by 90 miles of pipe to a small island just off Hammerfest. Anti-freeze is injected into the pipes to prevent the natural gas from clogging on its way to shore.

On the island, Melkoya, Statoil built a processing facility to separate the brew of natural gas, oil, water and carbon dioxide that flows out of the field. The natural gas is cooled to a temperature of 260 degrees below zero, shrinking its volume to one-six hundredth and turning it into a liquid that can be shipped in tankers.

Construction of the liquefaction plant over the last several years involved 22,000 workers, one of the largest industrial projects in Europe, and cost nearly $10 billion, up from $6 billion when the project was begun in 2002.

“We did not have the experience to operate in an environment like this,” Mr. Mosbergvik acknowledged.

The field is so large that it could eventually supply nearly 10 percent of the demand for natural gas demand in eastern states of the United States. Dominion, an energy company, has expanded a gas import terminal at Cove Point, Md., to accommodate the Arctic gas, according to Donald R. Raikes, its vice president for marketing and customer services.

By the end of October, Statoil’s gas will begin flowing through a network of pipes to a stretch of the country from Maryland to Massachusetts, the largest consumer market in the United States, with some 16 million residential customers and 5 million industrial clients.

With the plant nearly ready, Statoil maintains that the Barents Sea could turn into a major oil and gas region in coming decades. Indeed, the world’s fast-rising use of fossil fuels, by contributing to global warming, could eventually make the Arctic more accessible for oil and gas production.

In Hammerfest,residents have welcomed Statoil’s project, hoping it will offset declines in fishing. Modern buildings are rising to house the influx of gas workers. New taxes from the gas plant are helping finance a cultural center.

Statoil hopes to double its capacity on Melkoya by 2015. That will require finding new gas fields in the Barents Sea.

Hans M. Gjennestad, strategy manager at Statoil for the Barents region, said, “We believe this resource potential may contribute significantly to the long-term security of supplies of Europe and the United States.”

Posted by Hugo Albert Orwell at 09:12 AM | Permalink | TrackBacks (0)

Source: LifeAfterTheOilCrash.net

By Richard Heinberg for Museletter

September is an equinoctial mont, a time of momentary balance, instability, and change. Day and night are of equal length; however, the rate of change in the relative lengths of day and night is at its peak.

It’s been an unusually busy and stressful month for me personally. Leonardo Dicaprio’s enviro-doc “11th Hour” hit the theaters, featuring yours truly on screen for a few seconds (though the producer and director decided against including a mention of Peak Oil). Early in September I gave a presentation at the UN at the behest of two organic agriculture organizations (the Soil Association of Britain and the Shumei Foundation of Japan). On Thursday the 13th, a CNN Money reporter called wanting information about Peak Oil; his story appeared the next day. The very first copies of my new book, Peak Everything, shipped during the last week of the month. A few days ago a Korean TV crew stopped by and filmed me at home for a three-part documentary to air in November. And a family emergency (aging parent) sent me off to the Midwest for a week. As the saying goes, there’s no rest for the wicked.

The month was no less eventful for the rest of the world—though of course the scale of significance of the following items is approximately 6.7 billion times greater than for the preceding ones.

Maybe the best place to start is with a general comment. It’s getting pretty damn obvious that the world is sliding head-first into the abyss at an accelerating rate, with most Americans as oblivious as ever. The latest indication of impending doom is a festering credit crunch brought on by the inevitable puncturing of a bubble puffed up over the past few years through the issuance of thousands of patently idiotic subprime, adjustable-rate, and interest-only mortgage loans.

The deeper story is that this is just the last of a series of bubbles that the US Federal Reserve has inflated in order to sustain for as long as was humanly possible a fundamentally unsound national financial condition.

As I explained in Chapter 2 of The Party’s Over, the US got rich exploiting its own resources and labor. Its most valuable resource—oil—went into decline forty years ago; since then, we Americans have tried to stay rich by exploiting other nations’ labor and resources, using leveraged trade rules, dollar hegemony, and military threats. All this time, we congratulated ourselves: we were living in a post-industrial information economy; they were doing the dreary, obsolete work of actually making things. They sweated and saved; it was up to us to spend and borrow. We served an indispensable function in the global economy as the consumer of last resort, as the engine of new debt creation (more debt equals more money in circulation—i.e., more GDP growth), and as the global cop keeping order in an unruly world (while also sneaking donuts and taking bribes). The Chinese burned their coal and poisoned their workers and environment to make our stuff, enabling us to enjoy a cleaner environment by keeping our coal in the ground, while they loaned us the money to buy cheap Chinese stuff with. Such a deal!

Life in bubble world was grand while it lasted. First there was the Third World debt bubble of the ’80s; then came the tech bubbles of the ’90s; and finally the real estate bubble of the ’00s. Along the way, Wall Street hoped for a little extra hot air from the privatization of Social Security, but even Americans weren’t stupid enough to sign onto that particular leveraged buyout. All during this time, suburbanites got used to having more gadgets and bigger cars and houses, even if they couldn’t actually afford them.

But now we’re at the end of the line. At last the rest of the world is coming to realize that it doesn’t really need Americans: the Chinese can consume, too, after all. And the Asians can’t really justify loaning us more money; we’re not going to pay it back—or if we do, it will be in devalued dollars. But those loans can also be looked at as investments: other nations have in effect bought US assets, which means that the wealth created from those assets will flow to the new overseas owners, not to Americans. What’s left to buy—other than a lot of soon-to-be-foreclosed real estate? And how much wealth will those assets produce once the bubble deflates?

It’s also clear now that there are alternatives to the dollar, including the euro, the yen, and the yuan. Not that the dollar won’t be missed; when it tanks, there will be as many financial casualties in Mumbai as Manhattan. But currency traders are clearly heading for the exits, and the last one out gets the booby prize—a bag of wooden nickels.

Yes, the rest of the world still must fear America’s awesome weapons of mass destruction: this mighty nation can certainly create an unholy mess when it means to, as it is demonstrating in Mesopotamia. But that doesn’t mean that other nations actually have to obey it any more. The US can bomb to smithereens any country it chooses, but it can’t always count on forcing that country to hand over its resources at gunpoint.

The dollar is hitting record lows. Gold and silver are hot commodities—always a bad sign for the reigning paper currency. There are rumors of possible bank failures (following a run on one British bank). If the Federal Reserve tries to solve the liquidity crisis by lowering interest rates, that just worsens inflation and exacerbates the dollar’s problems. If the Fed raises rates to prop up the dollar, that forces the banks and hedge funds to confront their mountains of worthless paper and leads ultimately to defaults, bank runs, and bank failures. Clearly the Fed fears the latter scenario more than the former, so by lowering interest rates this month it effectively pulled the plug on the dollar. The Saudis are now preparing to de-link their economy from the US currency, while China is quietly selling off dollar-denominated assets. One way or another, Americans are going to soon see a rapid decline in their real standard of living.

Of course, another big event this month was oil’s nose-bleed ascent to record-high prices, over $82US per barrel. Part of the price hike resulted from the dollar’s weakness, but—as Goldman Sachs has pointed out—the main reason was simply that demand is up while supply is down. The May 2005 peak for the rate of production of regular crude and the July 2006 peak for all liquids are still holding. It may be that the technical maximum global rate of flow for liquid fuels is still a couple of years away, but in effect the peak is here now.

As for Iran, “all options” are still on the table, and the pretext for a broad-scale air attack is apparently being patiently laid. Bush has vowed that he will not leave office with the Iran question unresolved, and France’s new neocon leaders are running defense for Bush/Cheney, calling for “the most severe sanctions possible” and for war if those “don’t work.” Meanwhile, when Tehran actually complies with the International Atomic Energy Agency’s requests, this is viewed as a provocation. This month, Newsweek revealed that Vice President Dick Cheney at one point considered asking Israel to launch air strikes on an Iranian nuclear site, so as to provoke Iran to lash out, thus giving Washington a pretext for more extensive attacks (a scenario I discussed in MuseLetter for April 2007, “Iran: We Will Know Soon”). Iranian President Ahmedinejad’s appearances in New York (at the UN and Columbia University) seemed only to give the US media an opportunity to whip up further anti-Iranian public sentiment, while the Senate’s passage of the Lieberman-Kyl amendment (which Hilary Clinton supported) provided a stamp of approval for any future military actions by the current administration.

But surely the single most important event of the month was the revelation that arctic sea ice is melting faster than even the most dire forecasts had predicted. This is significant because it shows the power of reinforcing feedback loops: as sunlight-reflecting ice melts, it leaves dark water in its place—which absorbs more heat, causing more ice to melt, and so on. This year’s minimum extent of ice was about one million square miles (as of September 16); the previous record low was 1.5 million in 2005. The rate of melting this year was 10 times the recent annual average. This month the Northwest Passage was ice-free for the first time in untold millennia. At this rate, the north polar region could be ice-free in summer by 2015.

Altogether, it was an extraordinary 30 days. Yet so far there’s been no instantaneous economic implosion, and there’s not much blood in the streets (except perhaps in Myanmar), and so the mainstream media can safely focus on the truly vital issues like O.J. Simpson’s current legal scrapes and Britney Spears’s performance at the MTV awards.

Many writers who discuss the sort of stuff that interests me (“reality” I think it’s called) wrap the unutterable sadness of it all in a crisp cellophane of cynicism. I’m guilty of that, too, from time to time—certainly in this little monthly summary. How else to make it somehow bearable?

Posted by Hugo Albert Orwell at 10:19 PM | Permalink | TrackBacks (0)

Source: The Oil Drum

Posted by Prof. Goose on September 26, 2007 - 10:00am

I have intentionally paraphrased this wonderful Christmas song because it has much to say about the future after peak oil which I am now ready to say has already happened. As energy declines, we will indeed go to our grandmother's house--one without electricity and running water, sewer or septic and deep, mechanically pumped water wells. At least that was MY grandmother's house. She lived on the Kansas prairies of the 1890s. In the 1960s I asked my grandmother what the greatest invention of her life had been. She said electricity because before they had lights, everyone went to bed shortly after sun down because it was simply too dark to do to much. There was no air conditioning, so the summers were very hot. In the winter, trips to the outhouse were cold (and brutally awakening if during the middle of the night). While she had wood where she lived, about 100 miles west of her home, people had to burn dung as is done in Tibet today. See the picture below of the dung plastered against the house. When one wants to cook, one retrieves a patty.

Without cheap energy, we go back to my grandmother's house or one quite like it...

Yes, folks, peak oil is here, that thing that politicians don't speak of; that event which cornucopians (those who believe that we will not run out of energy) believe is a fraud or misunderstanding is here. The cornucopians believe we are wrong because many have predicted that we would run out of energy before and have been wrong. What they lacked was the 20-20 that hindsight gives one. Today, we can see the peak behind us.

First, how do we recognize when peak oil is about to happen or has happened? The first thing is that it always comes with a gradual decline in production. Steep changes in production curves are due to political or economic decisions. Let's look at Saudi production from 2001 to the present. (NB: Click all graphics throughout this post to expand them to full size.)

The first thing we notice is that it is declining from January 2001 to January 2002. That is the recession resulting from the collapse of the tech stock bubble, causing a worldwide reduction in oil demand. The world then began to recover. In January, 2003 political events in Venezuela shut in that country's oil. We find this

"January 12, 2003: OPEC held its 123rd meeting to review oil markets in Vienna, Austria. OPEC decided to raise its production quotas from 23 million barrels per day to 24.5 million barrels per day, effective February 1, 2003, in order to ensure adequate supplies of crude in response to the oil supply shortfall in Venezuela" http://www.eia.doe.gov/cabs/opec.html

This was a short-lived, very steep increase in production, followed a couple of months later by a nearly equivalent sharp drop in production. This is not a sign of peak oil; it is a sign of political manipulation of production. The next thing we notice is the sharp rise in production in April, 2004. This was due to the rise of price above $40/bbl, a level which OPEC had previously thought would cause a recession. They opened the taps to try to damp down the price. What they didn't count on was that China's and India's consumption had taken off like a rocket because of their economic growth. The price continued to rise, showing that scarcity of oil had come.

After a year and a half of all out production, we see the first signs of decline, normal natural decline in the Saudi production. The plateau of production is followed by a gradual decline in output. One might be tempted to say that the decline in production was due to declining prices, but this isn't true for the period from Oct. 2005 until July 2006. The price rose but the production declined. The gradualistic tail on Saudi production is what an oil field decline looks like.

Just as I was finishing writing this page, I saw this report.

Nicosia, Sept 8: Saudi Aramco in its Annual Review 2006 said that last year the company's crude oil production declined by 1.7 percent, while exports declined by 3.1 percent, compared with the previous year.

Crude oil production in 2006 averaged 8.9 million barrels of oil a day (b/d) and exports 6.9 million b/d. (http://www.dailyindia.com/show/172345.php/Saudi-Aramco-reports-oil-outpu... ) To me, the interesting thing about this is that with a 3.1 decrease in exports, this means that there is a reduction of 266,000 barrels per day available to the rest of the world. Production doesn't really matter to the rest of the world. Only exports matter. If the Saudi's used all of their oil, there would be nothing left for us to use. This data confirms that their exports are decreasing faster than their production is decreasing.

Let's take another example, the United Kingdom.

From 1995 until 1999, the UK production was a plateau. But in mid-1999, the monthly production began to gradually decline. I moved to the UK in August 2001, looked at the curves and told a colleague and fine geologist, Steve Daines, that the UK had peaked production. He disagreed. We made a bet for a lunch that at the end of 2000, the UK would produce no more than 130,000 tonnes of oil. I took below that figure, he took above. Instead of a lunch, he and his wife had me and my wife over for a wonderful Malaysian dinner cooked by his beautiful Malay wife. We ate that meal with gusto along with a Turkish couple, that they knew. The sad thing was that the UK production decline has continued even into this year. When I left the UK, I told one young geologist that if she wanted to have a career in the oil business, she was going to have to leave the UK. While that day hasn't come for her yet, it will. No one will pay geologists to manage fields that aren't producing. The above curve is what peak oil looks like for a country--a plateau followed by a gradual decline that is inexorable.

Now that we know what peak oil looks like, lets look at the current global production of both black oil (crude) and Total Liquids (crude plus condensate--a liquid that comes out of natural gas wells which is usually clear).

What we see here is that following the post-911 recession, there is the ramp up of production to supply the increasing demand from China and India. By late 2004, the rate of increase in world crude production (blue curve) slowed, reaching a peak of 74.3 million barrels per day in May 2004, marked by an arrow. The trend from that time has been down, gradually I would admit, but down none the less.

So, why do I call this the peak of world crude production? Isn't it possible that new production will come on line and lift that number above the 74.3 million bbl/day? Possible, barely, probable, no. Why? All the world's biggest fields are in decline, and they produce a large percentage of the world's oil. We saw Saudi Arabia's production, and that represents 10% of world oil. So, we know that 10% of the world's oil in in decline. But the Saudi's are the second largest producer. Russia, the largest producer of oil, is, at best, flat in production now. The U.S. is the third largest producer of oil (something that surprises everyone) and we have been declining in oil production for 30 years. These three countries account for 28% of the world's production, all in decline.

Mexico has the 3rd largest oil field and that one field represents 2/3 of its crude production. It is in decline, plummeting 20% last year. The UK, Norway, Indonesia, Oman and China are all in production declines. The only places on earth that are undergoing significant increases in crude production are Angola, Kazakhstan and Brazil. Kazakhstan will always be limited to the size of the pipeline it has available. Pipelines have fixed capacity.

Given all this, it is hard to see how the future is going to bring forth vast new quantities of daily production.

Another objection: Above I said that peak oil was a plateau followed by a decline. Could we be in the plateau of world production? Yes, that is certainly possible but for the reasons I list above, the current levels of production simply can't be maintained. Annually, the world loses 5 million bbl/day of productive capacity. The curve above shows that we are not adding to world productivity rates even 5 million bbl/day per year of productive capacity since 2005, which would have keep us absolutely flat.

Now, one other thing makes me think that this is the peak of world crude production. The price response in relation to the supply. Usually if price is going to bring forth new supplies from OPEC (who supposedly has all these vast untapped oil fields just waiting to be turned on), it would happen in sharp steps. The Saudi's have not increased production since late 2004 or early 2005. Yet, because the price has gone up from that time, if they had the oil, they could have made lots and lots of money. But they don't seem to be able to take additional advantage of the oil price. In spite of high prices, indeed, increasing prices, no one on earth seems to have the excess capacity sell more oil into this rising price environment. Given the past history of cheating on the part of the OPEC members, the lack of new supplies coming to market must say something important about its availability

Another interesting feature is the total liquids curve (the red curve). This is both black oil plus the clear condensate from natural gas wells. This curve also seems to have peaked, but peaked a year later, in July 2006. Thus, we are 2 years out from peak crude oil, but only one year out from a probable peak liquids.

What are the implications?

The most important thing we need to know is the rate of decline, which of course, we don't know and won't know for a while. We can delimit it a bit. a 1 million bbl/day decline from May 2005 until May 2007 represents approximately a .75% decline per year. Hardly something to worry about right? The first year of UK decline was only about .5%. The second year of decline was 9%, but then, the UK is a much smaller place than the world, so it is unrealistic to expect the world to follow precisely the UK pattern of decline. We can expect the world crude production to decline much faster in the next few years than it is right now. How fast remains to be seen, but even a 5% decline will mean that in 10 years we will be producing only 60% of what we do today! Instead of having 85 million barrels per day of total liquids, we would only have access to 50 million barrels per day.

Driving

Clearly that kind of restriction in oil supply means that either mass transit must come to America as it is in China, or we must only go to work 3 days per week. In 10 years, having only 60% of the oil we have today means 40% less driving for everyone. Going to work only 3 days per week, would mean the destruction of the economy. Most jobs can't be handled across the internet. How does one do the job of grocery store stocker by telecommuting? Even today though, the relatively mild oil prices we have experienced have altered the driving habits of the American public. I sent this chart to a friend last summer. The chart shows the change in mileage driven on US highways from last year. If we drive more this year than last year, the number will be positive; if we drive less, then the number is negative. As you can see, the response to the rise in the price of oil (green curve) has been that for the first time in 27 years Americans are driving less than the previous year. The last time this happened was during the Iranian hostage crisis!

Expect more of this in the future.

Another implication is that automakers shouldn't make gas guzzlers. Those old enough to remember the Iranian hostage crisis, when everyone had to take turns getting gasoline on alternate days, knows a bit of what it will feel like. Back then, people stopped buying big cars. The V8 went out of style in the 1970s; it was too expensive. I expect the Hummer will meet a similar fate.

Suburban sprawl won't work

American cities will need to restructure to be more like European cities, where one can walk to the stores. In Aberdeen, Scotland, most Aberdonians shopped daily because they had tiny refrigerators. But that didn't matter, if they forgot something, they could walk to the store in about the same time it takes me to drive to the store here.

Flying

Flying will become like it was when I was a child--the province of the rich. I did not get on a commercial jet until I was 25 years old. My children grew up with flying and have seen far more of the world than I have at an equivalent age. But, as oil prices rise, fuel costs will bury many airlines. As far as I know, I own no airline stocks either directly or indirectly through mutual funds. They are not going to have a growing clientele as energy costs go up. We have already seen one of the impacts of the energy costs to this sector. Years ago, I was speaking with my wife's brother-in-law who used to work with Boeing. Boeing had made the choice to go energy efficient with their planes, while Airbus had decided to go BIG. I told my wife's brother-in-law that Boeing had made the correct choice. This is from a Business Week web site:

"Instead, the show could highlight a growing list of woes at the company, based in Toulouse, France. On June 1, Airbus acknowledged that the first deliveries of the A380 will be delayed up to six months, from mid-2006 until early 2007, due to unspecified production difficulties. Then Emirates airlines, which had been expected to announce a big order for the A350 at the air show, said it was not ready to make a decision. Airbus sales chief John J. Leahy, who said earlier that he might announce more than 100 orders for the A350 in Paris, now says big orders could come "a week or two after."

Has Airbus lost its mojo? The past few months have been rough. Boeing, after trailing Airbus on orders for the past three years, has racked up 255 orders as of the end of May, compared with only 196 for Airbus. Even more worrisome, Boeing's new 787, which boasts better fuel efficiency thanks to lightweight composite materials and next-generation engine design, is proving a hit with airlines. They have placed orders and commitments for 266 of the jets, while Airbus has yet to announce a major deal for the competing A350. Meanwhile, the A380's order book has been stuck at 154 since last year." Why Airbus is Losing Altitude," June 20, 2005, http://www.businessweek.com/magazine/content/05_25/b3938069_mz054.htm

And a more recent news source notes that Boeing has won 706 orders for its Dreamliner while Airbuss has only 154 for the A350. Energy is king in the airline industry, even if a government run airplane manufacturer thinks they can change the laws, both of the land and of physics.

Food

One percent of world energy use goes to fertilizers. High energy prices will affect fertilizer use. Indeed, we can see that now. This is a plot of inflation adjusted oil price divided by 100 (so it will fit on the same chart) with the barrels of oil equivalent energy of fertilizer applied per acre of wheat. One can see that when oil prices are high, fertilizer use is low; and vice versa.

Few city people know that an acre of wheat has 1.3 million wheat plants--a density hard to achieve if one is throwing seed by hand. Corn is sown at 30,000 plants per acre. Such densities require mechanical sowers. To sow corn at these densities by hand would require 42 hours (5 seconds per seed). This kind of puts into perspective the utility of energy for our tractors. If the price of oil goes up, there will be fewer bushels per acre because of the combined effects of less mechanization and less fertilizer. Now clearly for a while efficiencies will help. People will figure out how to apply fertilizer more effectively; but eventually not having fertilizer will come into play.

I am fond of citing a little known fact I got from a Walter Youngquist article. Mechanization allows a farmer to spend 4 hours per acre and produce 160 bushels of corn per acre. Back in the 19th century, it was 500 hours per acre an 30 bushels of corn per acre. This of course brings an interesting conundrum to those expecting corn-based ethanol to fuel the world. Without petroleum-based fertilizers, there won't be enough corn to feed us much less fuel the world. A five fold drop in corn yields would leave many in the world starving.

It is unlikely that we will be able to have air-shipped strawberries from Argentina in the winter, so food will once again become seasonal, like it was in my childhood before globalization.

Water

Water and food are entirely linked. Without water, many crops won't grow, but we also need water to drink. A few weeks back the Wall Street Journal gave a couple of interesting facts about farming in India.

"Since the 1990s, India has been a major net exporter of rice, shipping nearly 4.5 million tons last year.
"But annual yield increases began to slow over the past decade. Farmers cranked up fertilizer and water use, draining the water table. Many began planting two crops a year, taxing the soil. Punjabi area officials discouraged farmers from planting two crops and in some places outlawed it, but many farmers ignored them."
"I'm doing mischief against the government,' concedes Kanwar Singh, a second rice crop recently on a stretch of flooded land near the northern India city of Karnal. He says he now has to pump water from 300 feet below the surface, compared with 70 feet 10 years ago." 'In a year or two, maybe it will be finished,' he says." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p. A10

and

"Lakhbir Singh, 35, this year planted aerobic rice for the first time. He says his costs have tripled over the past decade. His well was about 60 feet deep 10 years ago; now, it's down to 450 feet, and he has to use a special submersible engine to help haul the water to surface. The health of his soil has deteriorated, so he's using more fertilizer." Patrick Barta, "Feeding Billions, A Grain at a Time," Wall Street Journal, Saturday/Sunday July 28-29, 2007, p.A10

One simply MUST have energy to pull that water up from depths of 300 to 450 feet. Without it, there will be no water. Which raises the question, what will these poor guys do when the electricity isn't there to run their pumps?

But this isn't a problem for poor Indian farmers. When the electricity is off, the water pumps, which pump water out of deep wells will not be running. That means that agricultural irrigation will be interrupted. That means that city water supplies won't flow either. Both wells and surface water systems require electricity to move the water from source to your favorite drinking fountain.

Energy source

Another implication is that coal will have to play a larger role in the US energy budget over the near term. We can use coal to make diesel, electricity and thus mitigate, for a while, the coming problems. Coal can be used to manufacture fertilizer and avoid the problems (for a while) cited immediately above. We will use coal or our economy will not function. We will simply have to lose our aversion to coal and the CO2 it produces. I have asked many greens this question: If it comes to a choice between your child freezing in the dark or burning coal, which would you choose. I have yet find one so pure to their principles that they tell me they would let their kid freeze in the dark of a winter night. They all will burn coal to keep warm. Having lived in a society (China) where coal is the major source of energy, the smog is almost unbearable. There were days I could taste the sulfur in my mouth as I walked to work in Beijing. But we are no different than they. Their choice is also one of burn oil or have no heat in the winter or cooked food. The only alternative would be to chop down all the trees (which has almost been done in wide areas of China).

Yesterday there was an article in the Wall Street Journal talking about the coming electricity problems for Texas. Due to the success of the Greens at stopping TXU from building coal-fired power plants, in 3-4 years, Texas will probably start having similar problems to those California is having. California, and now Texas, stupidly decided that we would rather freeze in the dark rather than burn coal. We get 60% of our electricity from fossil fuels, coal, oil and natural gas! The decisions we make today will have immense impacts on your ability to go to work (how is your computer going to function without electricity? Do you really want to be able to drink water from the fountain on your 27th story office? Won't you just love walking those 27 stories each morning to get to work, which will put you in great shape if you don't have a heart attack during that first month of climbing). I suppose deodorant sales will increase in such a situation.

Conclusion

I will finish with personal story from my life overseas. When I lived in the UK, I saw what happens when the oil is shut off. In Sept 2000, the lorry drivers blockaded the refineries. My wife and I were brand new in the UK and driving back from a play in Aberdeen one night, we saw huge lines at the petrol stations. We wondered what was going on, but we drove on home not wanting to be in such long lines anyway. Unfortunately, those people in line, knew that the refineries had been blockaded, I didn't. By the time we realized it, the petrol was gone. That led to many interesting experiences. In one week, the food on the store shelves was gone. By two weeks, police and fire and ambulance were having trouble responding. Farmers were about to have to slaughter chickens because they couldn't get feed after only 2.5 weeks. Construction sites shut down. I learned through that experience that a society has about 3 weeks after the oil is shut off. Food ceases to moveinto the cities.

How can economic growth continue if each day into the future we have less energy than we had the day before??? This is a historic moment in human history. For the first time in 10,000 years, we have less energy than we had yesterday. And that will continue into the foreseeable future.

Posted by Hugo Albert Orwell at 05:26 PM | Permalink | TrackBacks (0)

Source: Treehugger.com

by Eckhart Beatty
San Francisco on 11.23.06

Roger Duncan serves as the Campaign Coordinator for Plug-in Partners, a national campaign for plug-in electric vehicles (PHEVs) striving to demonstrate clearly the viability of this market by doing the following: garnering support in the form of online petitions and endorsements by city governments across the country; procuring "soft" fleet orders; and developing rebates and incentives. TreeHugger's Eckhart Beatty recently had the chance to chat with Mr. Duncan about plug-ins and the future of automotive transportation.

TreeHugger: Why was Plug-in Partners founded in Austin, Texas?

Roger Duncan: As one of the more progressive utilities in the nation, Austin Energy has long led the nation in energy conservation. I was asked to see what else we could be doing in the area of clean energy, and I told the City Council we should start a new initiative in the transportation sector since I saw an eventual convergence between the electric and transportation industries. In my capacity as a manager we might be able to take advantage of the abundance of wind and solar potential to power cars. Soon we began seeing a convergence between the electric and transportation industries.

So in August of 2005, we founded Plug-In Austin. We realized from the beginning what we really had to do was to link similar ongoing efforts taking place across the country. We started by targeting the 50 largest cities in the U.S. Now we have members from utilities, environmental groups, businesses, as well as many other federal, state, and local organizations.

I had originally heard of the efforts of Felix Kramer and CalCars, Electric Power Research Institute EPRI, and Andy Frank, a UC Davis professor at who invented the plug-in technology some 30 years ago.

TH: What's the most important thing you want the average individual to know about plug-ins?

RD: They are very energy efficient, cleaner, and cheaper to operate.

TH: What’s the most efficient way of getting the most people to understand their importance in the shortest possible time?

RD: Invite folks to visit the website Plug-In Partners and recommend they sign up for the newsletter. Consider working with the media, as well getting promotions for us.

TH: If Proposition 87 had passed in CA, what would it have meant for the future of PHEVs?

RD: I really don’t know much about it. I’m not a big fan of initiatives. This one could only stand to help, though. It could well stand to buttress the campaigns of lots of alternative energy technologies—as well as ours.

TH: What would you recommend that everyone who doesn't live in California do in this regard? For instance, would similar initiatives be feasible in other states like Texas, as well?

RD: It (an initiative like California’s 87 ballot measure) probably wouldn’t occur in TX. I’m less interested in (proposing) legislation than in demonstrating a market for PHEVs.

TH: Are all hybrid designs the same—or are some different?

RD: There are different varieties. There’s the serial, the parallel—and then the hydraulic (a protoype still). Although, principal variations in designs relate to battery design such as Nickel-Metal Hydride versus Lithium Ion, there are other differences in the size of the battery compared to the engine (with some new ones proposing smaller gas engines and larger electric motors).

Andy Frank: "Just as in the case of any emerging product or technology, there are many ways to implement PHEV technology, optimize for various factors and conditions. We’re looking forward to sorting this out when car-makers begin building PHEVs." [Mr. Frank is the inventor of the PHEV.]*

TH: What is the longevity of battery systems compared to 100% electric cars?

RD: They may be more powerful per unit mass than the batteries in non-hybrids, but less powerful than pure electric cars. Also, plug-ins require a deep discharge of their batteries, whereas fully electric cars don’t need to discharge the batteries as much.

AF: "While the price/performance ratio of pure electric cars may match or exceed that of PHEVs, it’s not likely. I'll bet on the PHEV staying as the ultimate end game for the remainder of the century," he said. "Lithium is coming up fast and will definitely take over the Metal Hydride in power, weight, life, size, and costs," he concluded.*

TH: By their nature, cars are somewhat "disposable," to be replaced by a new model on average every seven years—or less! Is “planned obsolescence” addressed better by plug-ins, in addition to their superior efficiency?

RD: Not really. Cars stay on the road an average of 16 years. It’s unlikely this figure will decline sharply any time soon.*

TH: Could factory-built plug-ins be made to be "upgradable" with respect to engine designs (for a few years going forward so they won’t become outdated like the first generation Prius did)?

AF: "Not really. As cars become more computer-oriented and more telemetric, possibilities for upgraded systems increase. Most products get better over time—no surprise there."

According to Dr. Frank, although "upgrading is always possible," with upgraded parts becoming interchangeable, "you may be flogging a dead horse for a long time." He concludes by predicting, "The technology of these systems will change very fast and may not stabilize for many years—if ever!"

TH: Bush has backed plug-ins. How helpful has all the political rhetoric been so far?

RD: He "gets it," and his support has been helpful. The Department of Energy is now conducting serious discussions, and a new initiative has been launched within its R&D arm.

TH: What are some ways the Partnership could be strengthened?

RD: It’s actually moving faster than we can keep up with.

TH: Does the association have growth plans?

RD: Yes. We’re starting to approach more corporations. Some notable examples of these and other large organizations are P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members)..

TH: What’s the minimum number of cars in a fleet needed for a "soft order"?

RD: We consider four to five as the minimum, but may consider fewer. It’s called a "soft" order to signify simply an intent to built, since they haven’t been mass-produced yet; it is not an actual purchase order--yet. Also, they can’t be built on speculation, due to the matter of expense.

TH: With all the good news that came regarding PHEVs this year, what are the biggest hurdles in our way to getting them mass-produced?

RD: Only certain kinds of cars manufactures would seriously consider it for particular models.

TH: What’s the latest word on the largest car manufacturers warming up to the idea of producing PHEVs?

RD: Ford and GM have both begun focusing on PHEV initiatives. Initially, they had expressed resistance and uncertainty. The bottom line is they are still researching them. Nissan will develop one—perhaps by 2010.

TH: What does Google really intend to do when it says it "wants to build a plug-in"? Would it support CalCars, Edrive Systems, Energy, CS etc. to do this—or exactly what?

RD: It’s true we’re engaged in discussions with Google, but I’m not at liberty to offer any details today.

TH: What are the largest companies and associations involved with the organization?

RD: P.G.&E., Edison Electric Institute, the U.S. Conference of Mayors, and the National Consumer Federation of America (with over 100 million members).

TH: Who are some of the most noteworthy spokespersons of this idea?

RD: Hillary Clinton, Lester Brown, Orin Hatch, Jr., Barack Obama, George Pataki (Gov. NY), George Schulz, R. James Woolsey (former Director of CIA). Plug-in Partners maintains a list of partners.

TH: What can we do as consumers to get them to do so?

RD: They should visit the Plug-In Partners website: sign up, spread the word, and put in a fleet order if applicable to their business.

TH: What about the notion of the PHEV plugging into a grid concept? Where is that idea today?

RD: True, it’s an interesting idea, and I believe it will happen, but it will be years before it will have significant import, since millions of cars are needed to make an impact.

TH: If you lived in remote area, could you set up your PHEV to power your home during blackouts?

RD: Yes. Toyota recently built a prototype that would allow people to generate electricity at 13kW and 120 volts. This would be especially useful for those living off the grid.

TH: What is your impression of companies’ individual commitments to grappling with the issues of PHEVs?

RD: Yes, I think they will remain committed for the long haul.

TH: If everyone who reads this interview could do just one thing a week to help promote the future of plug-ins as a proven viable alternative to fossil fuels, what should it be?

RD: They should visit the website, sign up, and consider getting involved in our work.::

*Note: I am grateful to Felix Kramer, founder of CalCars and Dr. Andy Frank for help with some of these answers.::

Posted by Hugo Albert Orwell at 10:14 AM | Permalink | TrackBacks (0)

Source: The New York Times

Published: September 19, 2007

Backed by the White House, corn-state governors and solid blocks on both sides of Congress’s partisan divide, the politics of biofuels could hardly look sunnier. The economics of the American drive to increase ethanol in the energy supply are more discouraging.

American corn-based ethanol is expensive. And while it can help cut oil imports and provide modest reductions in greenhouse gases compared to conventional gasoline, corn ethanol also carries considerable risks. Even now as Europe and China join the United States in ramping up production, world food prices are rising, threatening misery for the poorest countries.

The European Union has announced that it wants to replace 10 percent of its transport fuel with biofuels by 2020. China is aiming for a 15 percent share. The United States is already on track to exceed Congress’s 2005 goal of doubling the amount of ethanol used in motor fuels to 7.5 billion gallons by 2012. In his State of the Union speech in January, President Bush set a new goal of 35 billion gallons of biofuels by 2017. In June, the Senate raised it to 36 billion gallons by 2022. Of that, Congress said that 15 billion gallons should come from corn and 21 billion from advanced biofuels that are nowhere near commercial production.

The distortions in agricultural production are startling. Corn prices are up about 50 percent from last year, while soybean prices are projected to rise up to 30 percent in the coming year, as farmers have replaced soy with corn in their fields. The increasing cost of animal feed is raising the prices of dairy and poultry products.

The news from the rest of the world is little better. Ethanol production in the United States and other countries, combined with bad weather and rising demand for animal feed in China, has helped push global grain prices to their highest levels in at least a decade. Earlier this year, rising prices of corn imports from the United States triggered mass protests in Mexico. The chief of the United Nations Food and Agriculture Organization has warned that rising food prices around the world have threatened social unrest in developing countries.

A recent report by the Organization for Economic Cooperation and Development, an economic forum of rich nations, called on the United States and other industrialized nations to eliminate subsidies for the production of ethanol which, the report said, is driving up food costs, threatening natural habitats and imposing other environmental costs. “The overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel,” it said.

The economics of corn ethanol have never made much sense. Rather than importing cheap Brazilian ethanol made from sugar cane, the United States slaps a tariff of 54 cents a gallon on ethanol from Brazil. Then the government provides a tax break of 51 cents a gallon to American ethanol producers — on top of the generous subsidies that corn growers already receive under the farm program.

Corn-based ethanol also requires a lot of land. An O.E.C.D. report two years ago suggested that replacing 10 percent of America’s motor fuel with biofuels would require about a third of the total cropland devoted to cereals, oilseeds and sugar crops.

Meanwhile, the environmental benefits are modest. A study published last year by scientists at the University of California, Berkeley, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, corn ethanol lowers emissions of greenhouse gases by only 13 percent.

The United States will not meet the dual challenges of reducing global warming and its dependence on foreign suppliers of energy until it manages to reduce energy consumption. That should be its main goal.

There is nothing wrong with developing alternative fuels, and there is high hope among environmentalists and even venture capitalists that more advanced biofuels — like cellulosic ethanol — can eventually play a constructive role in reducing oil dependency and greenhouse gases. What’s wrong is letting politics — the kind that leads to unnecessary subsidies, the invasion of natural landscapes best left alone and soaring food prices that hurt the poor — rather than sound science and sound economics drive America’s energy policy.

Posted by Hugo Albert Orwell at 03:54 PM | Permalink | TrackBacks (0)

Source: AlterNet

How Canada Went from 21st to 2nd in World's Oil Reserves

By Dan Woynillowicz
World Watch. Posted September 17, 2007.

The United States has its hopes pinned on Canada's "tar sands" for North American security in the oil market. But their "black gold" is an environmental nightmare.

It's well-known that the United States consumes more oil per capita than any other country in the world, absorbing two-thirds of global oil production. This heavy dependence has often, and aptly, been described as an addiction; even U.S. President George W. Bush trotted out the metaphor in his 2006 State of the Union address ("America is addicted to oil").

Most of us regard addictions (to anything) as inherently unhealthy and admission of the problem as the first step toward getting clean. In this case, however, U.S. policy has simply been to seek increased oil imports from more reliable sources closer to home, in effect, to replace distant and unstable dealers with one from the neighborhood -- specifically, Canada, already the kingpin dealer of oil to the United States. In 2005 Canada exported almost 1.5 million barrels per day to the United States, about 7 percent of U.S. daily consumption. Canada exports 66 percent of its domestic crude oil production, and since 1995 the United States has received 99 percent of these exports. At first glance, it would seem that Canada wouldn't be able to boost oil production to fill the gap; production of conventional light and heavy oil in Canada was predicted to peak in 2006 and then rapidly decline. But that's where Canada's "unconventional" tar sands come in.

Production

The vast bulk of Canada's tar sands is found in the province of Alberta, the country's most prolific producer of fossil fuels. The tar sands deposits underlie more than 140,000 square kilometers of relatively pristine boreal forest, an area larger than the state of Florida. It's estimated that the tar sands hold approximately 1.7 trillion barrels of crude bitumen (the technical term for the fossil fuel extracted from the tar sands). But most of this bitumen will never be recovered and only a fraction, 174 billion barrels, is estimated to be recoverable with today's technology and under current and anticipated economic conditions.

When the U.S. Department of Energy formally acknowledged these reserves in 2003, it vaulted Canada's oil reserves from 21st to 2nd in the world, behind only Saudi Arabia. It's little wonder then that the U.S. Energy Policy Development Group has described the tar sands as "a pillar of sustained North American energy and economic security." Canada's so-called "black gold" has come to be regarded as an abundant, secure, and affordable source of crude oil. But development of this unconventional fossil fuel comes with unconventional risks and consequences. Everything about the tar sands is big, most significantly its global warming and environmental implications -- leading some to now describe the tar sands as "Canada's dirty secret."

Producing oil from the tar sands is scraping the bottom of the oil barrel. Tar sands consist of a mixture of 85 percent sand, clay, and silt; 5 percent water; and 10 percent crude bitumen, the tarlike substance that can be converted to oil. Bitumen doesn't flow like crude oil, and getting it out of the tar sands is a messy job. The current technology, which has evolved relatively little since it was first developed in the early 20th century, is a hot water-based separation process that requires huge quantities of water and energy (see diagram). Imagine mixing a bucket of roofing tar into a child's sandbox. Then boil some water, pour it into the sandbox, and try to wash the tar out of the sand.

Most tar sands production takes place in vast open-pit mines, some as large as 150 square kilometers and as deep as 90 meters. Before strip-mining can begin, the boreal forest must be clear-cut, rivers and streams diverted, and wetlands drained. The overburden (the soil, rocks, and clay overlying the tar sands deposit) must be stripped away and stockpiled to reach the bitumen. Four tons of material are moved to produce every barrel of bitumen.

At current production rates, with just three mines operating, enough material is moved every two days to fill a 60,000-seat stadium. But only a small fraction of the bitumen deposits is close enough to the surface to be strip-mined. Over 80 percent of the established tar sands reserves are deeper and must be extracted in situ (in place) by injecting high-pressure steam into the ground to soften the bitumen so it can be pumped to the surface.

Once separated from the sand, the bitumen is still a low-grade, heavy fossil fuel that must undergo an energy-intensive process to upgrade it into a synthetic crude oil more like conventional crude, either by adding hydrogen or removing carbon. Upgrading the bitumen usually occurs before it is shipped to refineries, but sometimes raw bitumen is diluted (e.g., with naphtha) and pipelined to a refinery where it is both upgraded and refined. In the United States about three-quarters of the oil is refined into transportation fuels.

But even then not just any refinery will do. A certain amount of reconfiguring must occur at refineries more accustomed to handling conventional crude oil. Some American refineries, primarily in the Midwest and the Rocky Mountain region, already accept some synthetic crude oil from the tar sands. But with growing reliance on this source of oil, numerous American refineries are converting or expanding in order to handle tar sands-derived synthetic crude oil or raw bitumen.

Impacts

The environmental consequences of oil production from tar sands are major, beginning with its effect on climate change. North America's transition to oil from the tar sands not only perpetuates, but actually worsens, emissions of greenhouse gas pollution from oil consumption.

While the end products from conventional oil and tar sands are the same (mostly transportation fuels), producing a barrel of synthetic crude oil from the tar sands releases up to three times more greenhouse gas pollution than conventional oil. This is a result of the huge amount of energy (primarily from burning natural gas) required to generate the heat needed to extract bitumen from the tar sands and upgrade it into synthetic crude. The energy equivalent of one barrel of oil is required to produce just three barrels of oil from the tar sands.

In 2002 the Canadian government ratified the Kyoto Protocol on global warming, legally committing to a target of reducing the country's greenhouse gas pollution by 6 percent below 1990 levels by 2012. But the rapid growth of tar sands development and oil industry lobbying have undermined efforts to reduce greenhouse gas pollution for over a decade.

Since 1990, Canada's total emissions have risen 25.3 percent, a pace far exceeding the 16.3 percent increase in the United States, the second-fastest-rising nation, according to United Nations data. Regulations introduced in early 2007 are so fraught with loopholes and gaps that greenhouse gas pollution from tar sands is predicted to triple by 2020. Canada's greenhouse gas emissions in 2020 are projected to be 2 percent above 1990 levels. The environmental consequences of tar sands development hardly stop with climate change. Nowhere in the world is there a form of oil extraction and processing with more intense impacts on forests and wildlife, freshwater resources and air quality.

Forests. The tar sands are found beneath boreal forest, a complex ecosystem that comprises a unique mosaic of forest, wetlands and lakes. Canada's boreal forest is globally significant, representing one-quarter of the world's remaining intact forests. Beyond the ecosystem services it provides (cleansing water, producing oxygen and storing carbon), it is home to a wide variety of wildlife, including bears, wolves, lynx and some of the largest populations of woodland caribou left in the world. Its wetlands and lakes provide critical habitat for 30 percent of North America's songbirds and 40 percent of its waterfowl.

If currently planned tar sands development projects unfold as expected, approximately 3,000 square kilometers of boreal forest could be cleared, drained and strip-mined to access tar sands deposits close to the surface, while the remaining 137,000 square kilometers could be fragmented into a spider's web of seismic lines, roads, pipelines and well pads from in situ drilling projects. Studies suggest that this scale of industrial development could push the boreal ecosystem over its ecological tipping point, leading to irreversible ecological damage and loss of biodiversity.

Satellite images readily illustrate the magnitude of boreal forest impacts from tar sands mining operations. The United Nations Environment Program has identified Alberta's tar sands mines as one of 100 key global "hotspots" of environmental degradation. According to Environment Canada (the Canadian equivalent to the U.S. Environmental Protection Agency), development of the tar sands presents "staggering challenges for forest conservation and reclamation."

Very little of the area directly affected by mining operations has been reclaimed, and after 40 years of mining, not a single operation has received a reclamation certificate from the government of Alberta. Suncor Energy's operation, the longest-operating tar sands mine, says it has reclaimed 858 hectares of land since starting operations in 1967, less than 9 percent of the land its operations have disturbed to date. Syncrude Canada, the largest daily producer of tar sands, says its operations have disturbed 18,653 hectares since 1978, with just 4,055 hectares of land reclaimed. None of this reclaimed land has been certified as such. At best, reclamation of the tar sands region will be a large-scale experiment that is unlikely to restore a self-sustaining boreal forest ecosystem within the next century.

Waters. The Athabasca River winds nearly 1,500 kilometers from its source at the Athabasca Glacier in Jasper National Park to Lake Athabasca in Wood Buffalo National Park. It is Alberta's longest river and one of North America's longest undammed rivers. It enters Lake Athabasca at the Peace-Athabasca Delta, the largest boreal delta in the world, a World Heritage Site, and one of the most important waterfowl nesting and staging areas in North America.

It also passes directly through the boreal forest being cleared and strip-mined, and serves as the primary source of water used to separate the bitumen from the mined tar sands. Water withdrawals for tar sands surface mining operations pose threats to both the sustainability of fish populations in the Athabasca River and to the sustainability of the Peace-Athabasca Delta, jeopardizing the subsistence and commercial fisheries of local aboriginals.

Tar sands mining operations withdraw 2-4.5 barrels of fresh water from the river for every barrel of oil they produce. Current operations are permitted to withdraw more than 349 million cubic meters of water per year, a volume equivalent to the amount required by a city of 2 million people. But unlike city effluent waters, which are treated and released back into the river, tar sands mining effluent becomes so contaminated that it must be impounded.

Historically it was believed that the Athabasca River had sufficient water flows to meet the needs of tar sands operations. But it is becoming clearer that this might not be the case, particularly during the winter months, when river flows are naturally lower and growing demand for water withdrawals could lead to long-term ecological impacts. The sustainability of fish populations in the Athabasca River is threatened by continuous tar sands water withdrawals during the winter months in years when low precipitation rates in the Athabasca River basin lead to low flow conditions. Nonetheless, the government has failed to implement regulations that would require tar sands withdrawals to stop when the health of the river is at risk. In fact, the government explicitly allows the tar sands industry to continue withdrawing water no matter how low the river flows become.

For certain in situ drilling operations, significant amounts of water are required to create steam to be injected underground. Because the steam condenses into water and is pumped up with the bitumen, the water can be recycled. However, because some water remains underground, a continuous source of additional water (about half a barrel of water per barrel of bitumen) is required.

These operations are located much farther from the river and, as a result, rely mainly upon groundwater. Where shallower freshwater aquifers are used, the continuous pumping of water can lower the water table in the region. Because these groundwater aquifers are connected to lakes, rivers and wetlands, reducing their levels can cause lakes to shrink and wetlands to dry out. As a result, some operators have switched to deeper sources of salty groundwater. But because they require fresh water, the salty water must be treated, which produces large amounts of waste sludge that must be disposed of.

Both tar sands mining and in situ operations produce large volumes of waste as a result of their water use. For in situ operations, the primary waste stream, a result of treating salt water and the water that is pumped up with the bitumen, is disposed of in landfills or injected underground. Tar sands mining operations present a much more significant risk, because they produce large volumes of waste in the form of mine tailings (six barrels of tailings per barrel of bitumen extracted). These tailings, a slurry of water, sand, fine clay and residual bitumen, are stored in vast wastewater reservoirs.

The industry misleadingly refers to them as "tailings ponds," but collectively these pools of waste cover more than 50 square kilometers and are so extensive that they can be seen from space. One tailings pond at Syncrude's mining operation is held in check by the third-largest dam in the world. These tailings dumps pose an environmental threat resulting from the migration of pollutants through the groundwater system and the risk of leaks to the surrounding soil and surface water.

The high concentrations of pollutants such as naphthenic acids, which are found at concentrations 100 times greater than in the natural environment, are acutely toxic to aquatic life, yet the government has no water-quality regulations for these substances. Migratory birds fare slightly better: To prevent them from landing, propane cannon go off at random intervals and scarecrows stand guard on floating barrels. How this tailings waste, and its grave risks, might be dealt with in the long term remains unknown.

Air. Tar sands air pollution, both provincial and transboundary, is rapidly increasing. Since 2003 Alberta has been the industrial air pollution capital of Canada. Criteria Air Contaminants (CACs) are the most common air pollutants released by heavy industry burning fossil fuels. CACs are defined as "air pollutants that affect our health and contribute to air pollution problems" and include such things as nitrogen oxides (NOX), sulfur dioxide (SO2), volatile organic compounds and particulate matter, all of which are emitted in large volumes by tar sands operations.

Modeling of the impacts of approved tar sands development, which includes three operating mines and three operations at various stages of planning and construction, shows that maximum predicted ambient air concentrations of NOX and SO2 would exceed provincial, national and international guidelines. Emissions of volatile organic compounds such as benzene are also on the rise because of both emissions from burning fossil fuels (e.g., natural gas, diesel, coke) and the growing number of tailings ponds. The costs of such air pollution have not been considered.

The coming tar sands rush

Major global powers are positioning themselves to ensure access to oil from tar sands. To date, four of the five largest publicly traded oil companies in the world (Royal Dutch/Shell, ExxonMobil, ChevronTexaco, and TotalFina) have invested or committed themselves to invest billions of dollars in tar sands development. National oil companies have also staked their claim, ranging from Norway's Statoil to China's Sinopec.

Tar sands speculation, investment and development has grown dramatically. The oil industry's production target of 1 million barrels per day was achieved in 2004, 16 years ahead of the ambitious schedule for growth it laid out in 1995. That year the industry invested almost US$9 billion in Alberta's tar sands. More than US$100 billion of investment has been announced for development between 2006 and 2015.

The tar sands industry is now focused on quintupling production as quickly as possible. It is projected that tar sands production will reach 3-4 million barrels per day by 2015 and could grow to 5 million barrels per day by 2030, if not sooner. It is the prospect of this growth that has led Canadian Prime Minister Stephen Harper to label Canada an "emerging energy superpower."

The magnitude of the environmental risks and liabilities arising from Canada's tar sands rush is unprecedented in the history of North American energy production. Growing awareness about the global warming and environmental consequences of relying upon growth in tar sands production throws into sharp relief the perils of our addiction to oil in the 21st century. All North Americans, including future generations, have a stake in the outcome.

To address the impacts of tar sands production, a novel suite of government policies and innovative technologies must be deployed that drastically reduce the environmental impacts by achieving "carbon neutral" (no net greenhouse gas pollution) production, ensuring that development doesn't proceed any faster than reclamation of the boreal forest and reducing dependence on scarce freshwater resources.

The most immediate opportunity to begin our rehabilitation lies in the more efficient use of transportation fuels. To do so requires tackling another sacred cow: the flagging North American auto industry, which is in trouble partly because it is producing the wrong vehicles for the times. The abysmal fuel-efficiency of North America's SUVs, trucks and cars has actually declined since 1986.

The governments of the United States and Canada must collectively commit to implementing regulations that will make North America a global leader in fuel efficiency. By deploying more efficient technologies today, we can begin to ease the demand for transportation fuels and slow the headlong rush into extracting oil from the tar sands. This will afford policymakers and the private sector the time needed to drive investment toward low-carbon and no-carbon fuels, and to evolve our transportation systems and urban design into a state that is compatible with a carbon-free future. North America stands at a critical juncture in its transportation fuel future.

As conventional oil sources disappear, we face a stark choice: We can develop new, even dirtier sources of transportation fuels derived from fossil fuels like the tar sands, or we can set a course for a more sustainable energy future by improving the efficiency of our oil consumption while aggressively transitioning to clean and renewable transportation fuels and sustainable transportation systems.

The environmental and global warming consequences of even 1 million barrels per day of tar sands production must serve as a wake-up call, and we must acknowledge that increased reliance upon this unconventional, high-impact fossil fuel is not a viable path forward.

Dan Woynillowicz is a senior policy analyst with the Pembina Institute, based in Calgary, Alberta.

Posted by Hugo Albert Orwell at 10:10 AM | Permalink | TrackBacks (0)

Source: AP Writer via Yahoo

Wednesday September 12, 3:09 pm ET
By John Wilen, AP Business Writer

Oil Prices Reach $80 a Barrel for First Time After Government Reports Decline in Inventories

NEW YORK (AP) -- Oil futures prices rose sharply Wednesday, briefly climbing above a record $80 a barrel after the government reported a surprisingly large drop in crude inventories and declines in gasoline supplies and refinery activity.

The report from the Energy Department's Energy Information Administration suggested oil supplies are tightening as demand remains strong. That's why oil prices are rising despite OPEC's decision on Tuesday to boost crude production by 500,000 barrels per day this fall, analysts said.

Despite Wednesday's jump, oil is still well below inflation-adjusted highs hit in early 1980. Depending on the adjustment, a $38 barrel of oil in 1980 would be worth $96 to $101 or more today.

Oil's recent advance has been largely due to speculative buying by big investment funds, who are responding to a price structure in which oil contracts for delivery in future months are cheaper than the current front-month contract, said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

That kind of structure signifies tight demand in the immediate future, and is a buying incentive. Investors who buy now will end up with more oil contracts later, when October futures roll over to cheaper contracts for delivery in later months, Ritterbusch said.

"This is a market that wants to run up on the slightest bit of information," Ritterbusch said.

Prices were also being supported by worries a tropical depression that formed in the western Atlantic on Wednesday will become a hurricane and hit critical Gulf of Mexico oil and gas infrastructure.

"The National Hurricane Center says there's a good chance that could get into the Gulf," Ritterbusch said.

Light, sweet crude for October delivery rose $1.68 to settle at a record $79.91 on the New York Mercantile Exchange after rising as high as $80.18 earlier. October gasoline rose 3.49 cents to settle at $2.016 a gallon.

Nymex heating oil futures rose 3.64 cents to settle at $2.2191 a gallon, while natural gas futures jumped 50.4 cents to settle at $6.438 per 1,000 cubic feet. Natural gas prices typically react strongly to news of tropical weather due to the concentration of gas infrastructure in the Gulf.

At the pump, meanwhile, the average national price of a gallon of gas inched higher by 0.1 cent overnight to $2.815, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in late May.

In its weekly report on petroleum inventories, the EIA said crude oil supplies fell by 7.1 million barrels in the week ended Sept. 7, more than twice the 2.7 million-barrel decline analysts surveyed by Dow Jones Newswires, on average, had expected.

Gasoline inventories fell by 700,000 barrels, slightly more than the expected 500,000 barrel decline.

Refinery utilization fell by 1.6 percentage points to 90.5 percent of capacity. Analysts had expected a 0.1 percentage point decline. And inventories of distillates, which include heating oil and diesel fuel, grew by 1.8 million barrels, more than the 1.4 million-barrel increase analysts had expected.

Crude imports fell by 674,000 barrels a day on average last week to 9.56 million barrels, while gasoline imports fell an average of 298,000 barrels a day to 1.02 million barrels a day.

Demand for gasoline averaged about 9.6 million barrels a day over the last four weeks, about 0.9 percent above last year, EIA said.

Oil's run-up has perplexed some analysts, who expect demand for oil and petroleum products to cool this fall.

"We're at records, but it doesn't appear to be sustainable," said Chip Hodge, energy portfolio manager at John Hancock Financial Securities in Boston.

Indeed, the Paris-based International Energy Agency on Wednesday slightly lowered oil demand forecasts for this year and next.

Posted by Hugo Albert Orwell at 03:22 PM | Permalink | TrackBacks (0)

Source: Rolling Stone

From Issue 1032

JEFF GOODELL
Posted Jul 24, 2007 1:36 PM

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This is not just hype -- it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol. To avoid the prospect of drunks sucking on gas pumps, fuel ethanol is "denatured" with chemical additives (if you drink it, you'll end up dead or, at best, in the hospital). It can be distilled from a variety of plants, including sugar cane and switch- grass. Most vehicles can't run on pure ethanol, but E85, a mix of eighty-five percent ethanol and fifteen percent gasoline, requires only slight engine modifications.

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland. In the 1970s, looking for new ways to profit from corn, ADM began pushing ethanol as a fuel additive. By the early 1980s, ADM was producing 175 million gallons of ethanol a year. The company's then-chairman, Dwayne Andreas, struck up a close relationship with Sen. Bob Dole of Kansas, a.k.a. "Senator Ethanol." During the 1992 election, ADM gave $1 million to Dole and his friends in the GOP (compared with $455,000 to the Democrats). In return, Dole helped the company secure billions of dollars in subsidies and tax breaks. In 1995, the conservative Cato Institute, estimating that nearly half of ADM's profits came from products either subsidized or protected by the federal government, called the company "the most prominent recipient of corporate welfare in recent U.S. history."

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

Despite the serious drawbacks of ethanol, some technological visionaries believe that the fuel can be done right. "Corn ethanol is just a platform, the first step in a much larger transition we are undergoing from a hydrocarbon-based economy to a carbohydrate-based economy," says Vinod Khosla, a pioneering venture capitalist in Silicon Valley. Next-generation corn- ethanol plants, he argues, will be much more efficient and environmentally friendly. He points to a company called E3 BioFuels that just opened an ethanol plant in Mead, Nebraska. The facility runs largely on biogas made from cow manure, and feeds leftover grain back to the cows, making it a "closed-loop system" -- one that requires very few fossil fuels to create ethanol.

Khosla is even higher on the prospects for cellulosic ethanol, a biofuel that can be made from almost any plant matter, including wood waste and perennial grasses like miscanthus and switchgrass. Like other high-tech ethanol evangelists, Khosla imagines a future in which such so-called "energy crops" are fed into giant refineries that use genetically engineered enzymes to break down the cellulose in plants and create fuel for a fraction of the cost of today's gasoline. Among other virtues, cellulosic ethanol would not cut into the global food supply (nobody eats miscanthus or switchgrass), and it could significantly cut global-warming pollution. Even more important, it could provide a gateway to a much larger biotech revolution, including synthetic microbes that could one day be engineered to gobble up carbon dioxide or other pollutants.

Unfortunately, no commercial-scale cellulosic ethanol plants exist today. In one venture backed by Khosla, a $225 million plant in central Georgia is currently being built to make ethanol out of wood chips. Mitch Mandich, a former Apple Computer executive who is now the CEO of the operation, calls it "the beginning of a real transformation in the way we think about energy in America."

Maybe. But oil-industry engineer Robert Rapier, who has spent years studying cellulosic ethanol, says that the difference between ethanol from corn and ethanol from cellulose is "like the difference between traveling to the moon and traveling to Mars." And even if the engineering hurdles can be overcome, there's still the problem of land use: According to Rapier, replacing fifty percent of our current gasoline consumption with cellulosic ethanol would consume thirteen percent of the land in the United States - about seven times the land currently utilized for corn production.

Increasing the production of cellulosic ethanol will also require solving huge logistical problems, including delivering vast quantities of feedstock to production plants. According to one plant manager in the Midwest, fueling an ethanol plant with switchgrass would require delivering a semi-truckload of the grass every six minutes, twenty-four hours a day. Finally, there is the challenge of wrestling the future away from Big Corn. "It's pretty clear to me that the corn guys will use all their lobbying muscle and political power to stall, thwart and sidetrack this revolution," says economist C. Ford Runge.

In the end, the ethanol boom is another manifestation of America's blind faith that technology will solve all our problems. Thirty years ago, nuclear power was the answer. Then it was hydrogen. Biofuels may work out better, especially if mandates are coupled with tough caps on greenhouse-gas emissions. Still, biofuels are, at best, a huge gamble. They may help cushion the fall when cheap oil vanishes, but if we rely on ethanol to save the day, we could soon find ourselves forced to make a choice between feeding our SUVs and feeding children in the Third World. And we all know how that decision will go.

Posted by Hugo Albert Orwell at 12:50 PM | Permalink | TrackBacks (0)

Source: AlterNet

By James Howard Kunstler
Posted April 4, 2007

The following is James Howard Kunstler' recent speech to the Commonwealth Club of California. An audio stream of the speech is available.

Two years ago in my book The Long Emergency I wrote that our nation was sleepwalking into an era of unprecedented hardship and disorder -- largely due to the end of reliably cheap and abundant oil. We're still blindly following that path into a dangerous future, lost in dark raptures of infotainment, diverted by inane preoccupations with sex and celebrity, made frantic by incessant motoring.

The coming age of energy scarcity will change everything about how we live in this country. It will ignite more desperate contests between nations for the remaining oil and natural gas around the world. It will alter the fundamental terms of industrial economies. It will ramify and amplify many of the problems presented by climate change. It will require us to behave differently. But we are not paying attention.

As the American public continues sleepwalking into a future of energy scarcity, climate change, and geopolitical turmoil, we have also continued dreaming. Our collective dream is one of those super-vivid ones people have just before awakening, as the fantastic transports of the unconscious begin to merge with the demands of waking reality. The dream is a particularly American dream on an American theme: how to keep all the cars running by some other means than gasoline. We'll run them on ethanol! We'll run them on biodiesel, on synthesized coal liquids, on hydrogen, on methane gas, on electricity, on used French-fry oil... !

The dream goes around in fevered circles as each gasoline-replacement is examined and found to be inadequate. But the wish to keep the cars going is so powerful that round and round the dream goes. Ethanol! Biodiesel! Coal Liquids. ...

And a harsh reality indeed awaits us as the full scope of the permanent energy crisis unfolds. The global oil production peak is not a cult theory, it's a fact. The earth does not have a creamy nougat center of petroleum. The supply in finite, and we have ample evidence that all-time global production has peaked.

Of course, the issue is not about running out of oil, and never has been. There will always be some oil left underground -- it just might take more than a barrel-of-oil's worth of energy to pump each barrel out, so it won't be worth doing.

The issue is not about running out -- it's about what happens when you head over the all-time production peak down the slippery slope of depletion. And what happens is that the complex systems we depend on for everyday life in advanced societies begin to falter, wobble, and fail -- and the failures in each system will in turn weaken the others. By complex systems I mean the way we produce our food, the way we conduct manufacture and trade, the way we operate banking and finance, the way we move people and things from one place to another, and the way we inhabit the landscape.

I'll try not to dwell excessively on the statistics since I am more concerned here with the implications for everyday life in our nation. But it is probably helpful to understand a few of the numbers.

Oil production in the US peaked in 1970. We're now producing about half of what we did then, and our own production continues to run down steadily at the rate of a few percentage points of recoverable reserves each year. It adds up. In 1970, we were producing about 10 million barrels a day. Now we're down to less than five -- and we consume over 20 million barrels a day. We have compensated for that since 1970 by importing oil from other nations. Today we import about two-thirds of all the oil we use. Today, the world is consuming all the oil it can produce. As global production passes its own peak, the world will not be able to compensate for its shortfall by importing oil from other planets.

Nor is there any real likelihood that new discoveries will be adequate to compensate. Discovery precedes production, of course, because you can't pump oil that you haven't discovered. Discovery of oil in the US peaked in the 1930s -- and production started declining roughly 30 years later. Discovery of oil peaked worldwide in the 1960s, and now the signs suggest the world has peaked. Discovery of new oil worldwide in recent years has amounted to a tiny fraction of replacement levels. In fact, we may be burning more oil just in our exploration efforts than we will get from the oil we're discovering.

The oil industry has been dominated by what are called supergiant fields. The four reigning supergiant fields of oil our time were discovered decades ago and are now in decline. The Burgan field of Kuwait, the Daqing of China, Cantarell of Mexico, and Ghawar of Saudi Arabia. Together in recent decades they were responsible for 14 percent of the world's oil production, and they are now in decline. All except Ghawar of Saudi Arabia have been declared officially past peak by their own governments and Ghawar is showing clear signs of trouble -- though Aramco itself won't say so. Ghawar has provided 60 percent of Saudi Arabia's production. Saudi Arabia's total production is down 8 percent in the year past, despite a massive increase in drilling rigs, and the incentive of high prices.

Last year, the Mexican national oil company, Pemex, declared its supergiant field, Cantarell, to be officially past peak and in decline. As in the case with Ghawar and Saudi Arabia, Cantarell has been responsible for 60 percent of Mexico's oil production. Cantarell is now crashing at an official decline rate of at least 15 percent a year -- perhaps steeper. Mexico has been our No. 3 source of oil imports (after Canada and Saudi Arabia). The crash of Cantarell means in just a few years Mexico, our No. 3 source of imports, will have no surplus oil to sell to the US. It also means that the Mexican government will be strapped for operating revenue -- and you can draw your own conclusions about the political implications.

The North Sea and Alaska's North Slope were some of the last great discoveries of the oil era. Plentiful North Sea and Alaskan production took away OPEC's leverage over the oil markets. This led to the oil glut of the 1990s, driving oil prices down finally to $10 a barrel. It is also what induced the American public to fall asleep on energy issues. It seemed as if cheap oil was here to stay. Forever.

Both The North Sea and Alaska are now past peak and in depletion. Prudhoe Bay proved to be Alaska's only super giant oil field. Several other key fields were discovered. None were even 1/6th the size of Prudhoe Bay.

North Sea oil was produced using the latest-and-greatest new technology for drilling and guess what: it only allowed the region to be drained more rapidly and efficiently. Now 57 of Norway's 69 oil fields are past peak and the average post-peak decline rates average 17 percent a year. The UK's share of the North Sea has declined to the extent that England is now a net energy importer.

Russia, despite current high levels of post-Soviet-era production, peaked in the 1980s, and may now be past 70 percent of its ultimate recoverable reserves. Iran is past peak. Indonesia, an OPEC member, is so far past peak it became a net oil importer last year. Venezuela is past peak. Iraq and Nigeria are consumed by political insurrection. The companies developing Canada's tar sands have announced this past year that their costs will double original estimates -- in other words, whatever comes out of the ground there will be very expensive.

Meanwhile, in the background, completely ignored by the US media, an additional problem is developing on the oil scene. Net world production is going down by just under 3 percent a year, but total exports from the top ten exporters are going down at an even steeper rate. Geologist Jeffrey Brown, among the excellent technicians at TheOilDrum.com website, writes that the top ten exporters are showing a net export decline rate of 7 percent the past year, trending toward a 50 percent export decline over the coming ten years. Why? Because on top of production decline rates, nations like Saudi Arabia, Iran, and Venezuela are using more of their own oil at home with rising populations and more automobiles.

A few additional background items. Most of the easy-to-get, light and sweet crude oil is gone. We got that out of the ground in the run-up to peak [oil]. We found that high quality oil in temperate places onshore, like Texas, where it was easy and pleasant to work, and the stuff was relatively close to the surface. The remaining oil is, each year, proportionally made up more of heavy and sour crudes that are hard to refine and yield less gasoline. Most of the refinery capacity in the world cannot process these heavy and sour crudes and there is no world-class industrial effort to build new ones -- and on top of that, existing world refinery infrastructure is old and rusty. Finally, most of the remaining oil in the world exists either in geographically forbidding places where it is extremely difficult and expensive to work, like deep water out in the ocean or in frozen regions, or else it belongs to people who are indisposed to be friendly to us.

The natural gas situation is at least equally ominous, with some differences in the technical details -- and by the way, I'm referring here not to gasoline but to methane gas (CH4), the stuff we run in kitchen stoves and home furnaces. Natural gas doesn't deplete slowly like oil, following a predictable bell curve pattern; it simply stops coming out of the ground very suddenly, and then that particular gas well is played out. You get your gas from the continent you're on. Natural gas is moved to customers in the US, Canada, and Mexico in an extensive pipeline network. To import natural gas from overseas, it has to be liquefied, loaded in a special kind of expensive-to-build-and-operate tanker ship, and then offloaded at specialized marine terminal, all adding layers of cost. The process also obviously affords us poor control over not-always-friendly foreign suppliers.

Half the homes in America are heated with gas furnaces and about 16 percent of our electricity is made with it. Industry uses natural gas as the main ingredient in fertilizer, plastics, ink, glue, paint, laundry detergent, insect repellents and many other common household necessities. Synthetic rubber and man-made fibers like nylon could not be made without the chemicals derived from natural gas. In North America, natural gas production peaked in 1973. We are drilling as fast as we can to keep the air conditioners and furnaces running.

That's the background on our energy predicament. Against this background is the whole question of how we live in the United States. I wrote three books previously about the fiasco of suburbia. There are many ways of describing it, but lately I refer to it as the greatest misallocation of resources in the history of the world. Why? Because it is a living arrangement with no future. Why doesn't it have a future? Because it was designed to run on cheap oil and gas, and in just a few years we won't have those things anymore.

Having made these choices, we are now hobbled by a tragic psychology of previous investment -- that is, having poured so much of our late-20th century wealth into this living arrangement -- this Happy Motoring utopia -- we can't imagine letting go of it, or substantially reforming it.

We have compounded the problem lately by making the building of suburban sprawl the basis of our economy. Insidiously, we have replaced America's manufacturing capacity with an economy based on building evermore suburban houses and the accessories and furnishings that go with them -- the highway strips, the big box shopping pods, et cetera -- meaning that our economy is now largely based on building more and more stuff with no future -- on a continued misallocation of resources. Roughly 40 percent of the new jobs created between 2001 last year were in housing bubble related fields -- the builders, the real estate agents, the mortgage brokers, the installers of granite countertops. If you subtracted the housing bubble from the rest of the economy in recent years, there wouldn't be much left besides hair-styling, fried chicken, and open heart surgery. Much of this housing bubble itself was promulgated by an equally unprecedented lapse in standards and norms of finance -- a tragedy-in-the-making that has now begun to unwind. What are we going to do about our extreme oil dependence and the living arrangement that goes with it?

There's a widespread wish across America these days that some combination of alternative fuels will rescue us; will allow us to continue enjoying by some other means what has been called "the non-negotiable American way of life." The wish is perhaps understandable given the psychology of previous investment.

But the truth is that no combination of alternative fuels or systems for using them will allow us to continue running America the way we have been, or even a substantial fraction of it. We are not going to run Wal Mart, Walt Disney World, Monsanto, and the interstate highway system on any combination of solar or wind energy, hydrogen, nuclear, ethanol, tar sands, oil shale, methane hydrates, thermal depolymerization, zero-point energy, used french-fry oil, or anything else you can name. We will desperately use many of these things in many ways, but we are likely to be disappointed by what they can actually do for us, particularly in terms of scale -- apart from the fact that most or all of them are probably net energy losers in economic terms.

For instance, we are much more likely to use wind power on a household or neighborhood basis rather than in deployments of Godzilla-sized turbines in so-called wind farms.

The key to understanding what we face is that we have to comprehensively make other arrangements for all the normal activities of everyday life. It is a long, detailed "to do" list that we can't afford to ignore. The public discussion of these issues is impressively incoherent. This failure of the collective imagination is reflected in the especially poor job being done by the mainstream media covering this story -- in particular, The New York Times, which does little besides publish feel-good press releases from Cambridge Energy Research Associates, the oil industry's chief public relations consultant.

These days, the only aspect of these issues that we are willing to talk about at all is how we might keep all our cars running by other means. We have to get beyond this obsession with running the cars by other means. The future is not just about motoring. We have to make other arrangements comprehensively for all the major activities of daily life in this nation.

We'll have to grow our food differently. The ADM/Monsanto/Cargill model of industrial-scale agribusiness will not survive the discontinuities of the Long Emergency -- the system of pouring oil-and-gas-based fertilizers and herbicides on the ground to grow all the cheez doodles and hamburgers. As oil and gas deplete, we will be left with sterile soils and farming organized at an unworkable scale. Many lives will depend on our ability to fix this.

We will find out the hard way that we can't afford to dedicate our crop lands to growing grains and soybeans for ethanol and biodiesel. A Pennsylvania farmer put it this way to me last month: "It looks like we're going to take the last six inches of Midwest topsoil and burn it in our gas tanks." The disruptions to world grain supplies by the ethanol mania are just beginning to thunder through the system. Last months there were riots in Mexico City because so much Mexican corn is now being already being diverted to American ethanol production that poor people living on the economic margins cannot afford to pay for their food staples.

You can see, by the way, how this is a tragic extension of our obsession with running all the cars.

In the years ahead, farming will come back much closer to the center of American economic life. It will necessarily have to be done more locally, at a smaller-and-finer scale, and will require more human attention. Many of the value-added activities associated with farming -- making products like cheese, wine, oils -- will also have to be done much more locally. This situation presents excellent business and vocational opportunities for America's young people. It also presents huge problems in land-use reform. Not to mention the fact that the knowledge and skill for doing these things has to be painstakingly retrieved from the dumpster of history.

We're going to have to move people and things from place to place differently. It is imperative that we restore the US passenger railroad system. No other project we could do right away would have such a positive impact on our oil consumption. We used to have a railroad system that was the envy of the world. Now we have a system that the Bulgarians would be ashamed of.

The infrastructure for this great task is lying out there rusting in the rain. This project would put scores of thousands of people to work at meaningful jobs, at every level, from labor to management. It would benefit all ranks of society. Fixing the US passenger rail system doesn't require any great technological leaps into the unknown. The technology is thoroughly understood. The fact that from end-to-end of the political spectrum there is no public discussion about fixing the US passenger rail system shows how un-serious we are.

There's another compelling reason we should undertake the great project of repairing the US passenger rail system: it is something that would restore our confidence, a way we could demonstrate to ourselves that we are competent and capable of meeting the difficult challenges of this energy-scarce future. ... And it might inspire us to get on with the other great tasks that we will have to face.

By the way, it is important that we electrify our railroad system. All the other advanced nations have electric rail systems which allow them to run on something other than fossil fuel or to control the source point of the carbon emissions and pollution in the case of coal-fired power generation. Electric motors are far simpler and way more efficient even than diesel engines. The US was well underway with the project of electrifying our railroad system, but we just gave up after the Second World War as we directed all our investment to the interstate highway system instead.

We're going to have to move things by boat. But we've just finished a 50-year effort in taking apart most of the infrastructure for maritime trade in America. Our harbors and riverfronts have been almost completely de-activated. The public now thinks that harbors and riverfronts should only be used for condo sites, parks, bikeways, band shells and festival marketplaces. Guess what: We're going to have to put back the piers and warehouses and even the crummy accommodations for sailors.

We're going to have to move a lot more stuff by water or our ability to do commerce will suffer. Meanwhile, if we use trucks, it will be for the very last local increment of the journey. Leaders in business and municipal politics will have to wrap their minds around this new reality.

We are probably in the twilight of Happy Motoring -- as we have known it. The automobile will be a diminished presence in our lives. I'm not saying that cars will disappear, but it will become self-evident that our extreme dependency will have to end. It is possible, but not likely, that affordable electric cars will come on the market before we get into serious trouble with oil. More likely, we'll be facing an entirely new political problem with cars as motoring becomes increasingly only something that the economic elite can enjoy.

For decades, motoring has been absolutely democratic. Everybody from the lowliest hamburger flipper to the richest Microsoft millionaire could participate in the American motoring program. Right now, let's say six percent of adults in this nation can't drive, for one reason or another: They're blind, too old, too poor, et cetera. What if that number rose to 13 percent, or 26 percent of Americans because either the price of fuel or the cost of a vehicle rose beyond their means. Do you suppose that a whole new mood of grievance and resentment might arise against those who were still driving cars? And how would the large new class of non-drivers feel about paying taxes to maintain the very expensive interstate highway systems?

Back to the task list:

We're going to have to make other arrangements for commerce and manufacturing. The national chain discount stores that took over American retail in recent decades will not survive the discontinuities of the Long Emergency. Their business equations and methods of operations will fail, in particular their remorseless cancer-like drive toward replication and expansion. They will lack the resilience to adapt due to their gigantic scale of operations -- a scale that will no longer be appropriate to the contracting available energy "nutrients."

The so-called "warehouse on wheels" composed of thousands of trucks circulating incessantly around the interstate highways will not work economically in a new era of scarcer and expensive oil. Not to mention the 12,000-mile supply line to the factories of Asia which we have tragically come to depend on for so many of our household goods.

We have to check all our assumptions at the door about how things will work in the years ahead. Lately, thanks to Tom Friedman and other cheerleaders for the global economy, we've adopted the notion that globalism is a permanent condition of life. I think we will be disappointed to learn the truth -- that globalism was a set of transient economic relations made possible at a particular time by very special conditions, namely half a century of cheap energy and half a century of relative peace between the great powers.

Those conditions are about to end, and with them, I predict, will go many of the far-flung economic relations that we've come to rely on. When the US and China are contesting for the world's remaining oil resources, do you think it's possible that our trade relations might be affected? These are things we had better be prepared to think about it. China has way outstripped its own dwindling oil supply. China has gone all over the world in recent years systematically making contracts for future delivery of oil with other nations, including Canada, as that nation ramps up production of the tar sands in Alberta.

I want to remind you that there is such a thing as the Monroe Doctrine, an American foreign policy position that essentially forbids nations outside the western hemisphere from intruding in or exploiting affairs in this part of the world. It may be an old and perhaps an arrogant policy -- but I predict the time will come when the United States will invoke it in order to preserve our access to Canadian oil supplies. And if-and-when that occurs, what do you suppose that will mean to our trade relations with China? How many plastic wading pools and salad shooters will Wal-Mart be ordering then?

These are the kinds of things we are not thinking about at all, and which leave us woefully unprepared to face a very uncertain future.

Getting back to retail trade in the US -- it is important to recognize the damage that the national discount chain stores have already done in systematically destroying local commercial economies. If you travel around the main street towns of this nation, as I do, you see places in Pennsylvania, and Michigan, and Alabama, and Oklahoma, and Connecticut, and in my region of the upper Hudson Valley in New York that look like former soviet backwaters. The destruction, the abandonment and desolation in the fabric of our towns is just out of this world.

This era of chain store supremacy will not continue far into the future, and as it wobbles and falls we will be faced with a tremendous task of rebuilding the fine-grained, multi-layered local networks of economic interdependency that the chain stores destroyed. As that rebuilding occurs we will restore social roles as well as economic roles that have long been absent in our home places.

In destroying local retail infrastructures, the chain stores wiped out a whole mercantile middle class. These were the people ran local businesses, who sat on the library and hospital boards, who sponsored the little league baseball, who employed their neighbors and had to behave decently toward them, as well as treating their neighbors decently in matters of trade. They were people who uniformly had to take care of at least two buildings in town -- the place where they did business and the place where they lived. These were the people who were the caretakers of our communities, and the extermination of this class of citizens has been devastating.

We don't know how we are going to make things again in America, for instance, ordinary household products. We're not going to re-live the 20th century, when the US was on a great upswing of energy resources and we made everything for ourselves from toasters to record players. Where I live, in the upper Hudson and Mohawk Valley region of New York, most of the factories have actually been knocked down in the past 20 years. The water power is still there in many of these places, but the buildings are gone. Among all our other wishes, there is a wish that we will innovate stunning new methods for making things, such as nanotechnology. I'd repeat that we'd better check all our assumptions at the door and that we are liable to be disappointed by what these wishes will eventually lead to.

I think the truth is, we are going to have fewer things to buy. The Blue-Light-Special retail orgy of recent decades will fade into history, and shopping will retreat into the background of daily life. Consuming things will not be our sole reason for living.

The role of finance as we know it today will be severely challenged by the Long Emergency. Declining energy supplies have one particular grave implication for industrial societies: that they can no longer take for granted the 3 to 7 percent annual growth in gross domestic product that has been assumed to be normal throughout recent history. In fact, the energy picture -- the dwindling of a particular, extraordinary, one-time, very special resource -- implies a general contraction of productive activity.

Our expectations for growth are vested in tradable paper certificates -- currencies, stocks, bonds, and other instruments that represent our confidence that society will produce more wealth, and that this increase can be enjoyed in the form of profits and dividends. What happens when that consensus about reliable increase falls apart? What happens to the entire edifice of finance when these abstract certificates are no longer backed by the faith of people who have been trading them?

We can see the beginning of this process right now in the unwinding of the home mortgage sector. This recent experiment in the abolition of moral hazard, in the suspension of norms-and-standards in lending, in the fobbing off of risk, is climaxing in one of the great debacles of modern economics. It was based on the idea that immense numbers of promises for future payment could be bundled into bonds, resold, and parlayed to leverage evermore abstract casino-like bets masquerading as investments. This is anything but investment in future productive activity.

It is now being discovered that at the foundation of all this jive-finance activity lie bundles of broken promises, "non-performing loans," as they're called. It remains to be seen how this mortgage-and-housing bubble fiasco will play out, but I think it will be one of the major events leading to an overall loss of presumed wealth for American society. And is likely, as well, to infect the jury-rigged structures of global finance to a disastrous degree.

The key to all our everyday activities in the future is scale. We will probably have to live more locally than has been the case in recent decades. I think we can state categorically that anything organized on the gigantic scale, whether it is an agricultural system, or a finance system, or a corporation, or a chain of stores, or a school, or a government, is going to run into trouble.

School is another item on our "to do" list of things that we have to make other arrangements for. The gigantic centralized public school systems all over America that depend on the massive fleets of yellow school buses for collecting the students every morning around the 50-mile-radius 'pupil sheds' -- this way of doing things will probably encounter failure. Not to mention that we used the same kind of sprawling, one-story, flat-roofed buildings in Florida as in Minnesota -- and given the situation with natural gas we'll have trouble heating these buildings in the colder states. Of course there are plenty of reasons to suspect that schools this large, designed like medium security prisons, are not optimum settings for learning even if oil and gas were plentiful.

Complicating the issue is the fact that our school systems are at the center of the psychology of previous investment. We have put so much of our collective wealth in these sprawling, oversized, vehicle-dependent institutions -- with all their fabulous amenities of swimming pools, video labs, and free parking -- that it will be very difficult for us to let go of them -- even after it is self-evident that they are no longer working. What will replace our giant centralized public schools? School districts will be starved for cash in the Long Emergency. I doubt that we will be able to replace the centralized schools with a whole new system of smaller buildings distributed more equitably around the places where people live. If anything, I suppose a replacement may arise out of home schooling, especially as home schools aggregate into larger neighborhood units so that every parent doesn't have to duplicate the vocational role of teacher (and of course not all parents would even be capable of acting in that role).

The destiny of higher education ought to be especially troubling. The giant universities are exactly the kinds of institutions that will prove unwieldy and unsupportable in the Long Emergency. College will cease to be the mass consumer activity it became in the cheap energy heyday. If it survives at all, it is likely to be -- as earlier in history -- an activity for a much smaller economic elite.

The question of class relations per se will be affected by our energy situation, since it is necessarily linked to our economy. The Long Emergency is going to produce a lot of economic losers -- a whole new group I call the formerly middle class. They will lose jobs, vocations, and incomes that they will never get back. They are going to be full of grievance, anger, resentment, and bewilderment at the loss of their entitlements to the "non-negotiable" American way of life, including home ownership and affordable happy motoring. They are likely to express these feelings politically. We will be lucky if they do not turn to demagogues who promise to mount one sort of campaign or another to restore the entitlements of suburbia.

Such a campaign would be an enormous exercise in futility and a gross waste of our scarce remaining resources. But it is the kind of thing that happens when a society comes under extreme stress, and we had better be prepared for it. Social friction may also be prompted as agriculture comes closer to the center of our economic life, and we're faced with conflict between those who retain wealth in productive land and those who must resort to working in agriculture to make a living. In history, this typically sets the stage for the radical redistribution of property, seizure of land, in short, for political revolution. It could happen here. We are certain to experience epochal demographic shifts in any case. The 200-year-long trend of people leaving the rural places and the small towns to go to the big cities will very likely go into reverse.

Our hyper-gigantic cities and so-called metroplexes are a pure product of the 200-year-long upward arc of cheap energy. Like other things of gigantic scale, our cities will get into trouble. They are going to contract substantially. The cities that are composed overwhelmingly of suburban fabric will be most susceptible to failure. Orlando, Houston, Atlanta. The cities that are overburdened with skyscrapers will face an additional layer of trouble -- the skyscraper, like the mega-city, was a product of cheap energy, and we are going to have trouble running them, especially heating them without cheap natural gas.

As our cities contract, I think they will re-densify at their centers and around their waterfronts, if they are located favorably on water, and depending on how (or if) rising ocean levels might affect them. The process of contraction in our cities is likely to be difficult, disorderly and unequal. Some cities will do better than others. In my opinion, Phoenix and Tucson will be substantially depopulated. They will face additional problems with their ability to produce food locally and with water.

In Las Vegas, the excitement will be over. That will be a good thing since it has become the holy shrine of America's new chief religion: the worship of unearned riches -- based on the belief that it is possible to get something for nothing -- a belief that underlies, by the way, a great deal of the delusional thinking abroad in this land about the ability of alternative fuels and energy schemes to rescue our current mode of living.

It is hard to be optimistic about the destiny of our suburbs. My referring to them as the greatest misallocation of resources in the history of the world pretty much says it all. There will be a wish to rescue them, of course, but it is unlikely to go beyond the wishing stage. We will be a less affluent society in the years ahead than we were when we built the suburbs in the first place, and we will have fewer resources to fix them or retrofit them. The Jolly Green Giant is not going to come and move the houses closer to the shopping -- to undo the vast absurdities of single-use-zoning.

We could reform our codes and regulations which have virtually mandated a suburban sprawl outcome in every American locality -- but it's a little late for that. The horse is out of the barn on that one. And anyway, I believe the mortgage-and-housing bubble fiasco will mark the end of the whole project of suburbanization per se. I don't believe the production home builders will ever recover from it in our lifetimes; we certainly don't need a single additional WalMart or fried food joint; and the energy problems we face will eventually overcome all our wishes to keep that system going, whether we like it or not.

Realistically, I think we will have to return to a set of traditional ways of inhabiting the terrain -- towns, smaller-scaled cities composed of walkable neighborhoods, and a productive rural landscape with more of a human presence than we see in today's countryside. We have thousands of smaller towns and cities waiting to be re-inhabited and re-activated. Most of them occupy geographically important or valuable sites, especially the ones near fresh running water.

For the past two decades I have been associated with the New Urbanist movement. The New Urbanists were architects, planners, and developers who recognized the tremendous weaknesses and liabilities of the suburban pattern and have been campaigning to reform the way we build things in this country. Their methods are consistent with what we are going to need in the decades ahead to refashion human habitats that have a future and which are worth caring about.

The great achievement of the New Urbanists was not in the projects and new towns that they designed and caused to get built in recent years, but in their heroic act of retrieving lost knowledge from the dumpster of history -- a whole body of principles, methods, and skills necessary to design places worth living in. This was knowledge and principle that we had thrown away in our mad rush to become a drive-in utopia. We threw it away thinking that we could replace urban design and artistry with mere traffic engineering and statistical analysis. The result of that is now visible for all to see in the tragic landscape of the highway strips and the single-income housing pods. What we managed to do was build a land full of scary places that turned us into a nation of scary people. But this was the final tragedy of suburbia: we put up thousands of places that aren't worth caring about, not understanding that when we had enough of them, we might be left with a nation not worth defending.

So there you have a comprehensive "to do" list of efforts we can make to meet the challenges of the permanent global energy crisis, things we can do to mount an intelligent response to these circumstances that reality is sending our way. Growing more of our food locally; restoring our railroads and other forms of public transit; rebuilding local networks of commerce and economic interdependency; reorganizing education at an appropriate scale for the future.

We cannot assume a seamless transition between where we are today and where we're going. It maybe turbulent and disorderly.

We cannot assume that technology alone will rescue us. In fact, one of the major obstacles to clear thinking these days is the mistaken belief that technology and energy are the same thing; that they are interchangeable; that if you run out of one, you can just plug in the other.

Energy and technology are related to each other but they are not the same. Technology may help us get energy resources, or use energy resources, but it is not an energy resource itself. We assume magical properties for technology largely because, in our lifetimes, the energy has always been there behind it, steady, dependable, and cheap.

What's more energy and technology both entail very insidious side effects. Energy throws off entropy, a protean force of disorder and loss that manifests in everything from the wasted heat coming out of an engine tailpipe to the immersive ugliness of the American commercial highway strip -- which is entropy-made-visible.

Technology throws off diminishing returns, in the sense that the more complex you make things, often the worse the effect on society as a whole. My favorite example is the telephone system. For more than two decades we have invested billions in computerizing every phone system in the land. The net result, after all that investment and effort, is that it is practically impossible to reach a live human being on a telephone -- not to mention the monumental ten-times-a-day aggravation of getting booted into a computerized phone menu leading to the purgatory of terminal "hold."

I hope we can overcome our tendencies to try to get something for nothing and to engage in wishful thinking. The subject of hope itself is an interesting one. College kids on the lecture circuit always ask me if I can give them some hope. Apparently, they find this view of the future to be discouraging. It may mean fewer hours playing Grand Theft Auto with a side order of Domino's pepperoni pizza, but there are many positive implications for our lives in the future. We may once again live in places worth caring about, where beauty and grace are considered everybody's birthright. We may work side-by-side with our neighbors, on things that are meaningful. Instead of canned entertainments, we may hear the sounds of our own voices making music, see the works of our own dramatists and dancers.

Hope is something we really have to supply for ourselves. We are our own generators of hope, and we do it by demonstrating to ourselves that we are capable of facing the circumstances of our time, of working competently to meet these challenges, and of learning the difference between wishing and doing. In fact, what we need is not so much hope, but confidence in our inherent abilities and the will to act.

We've got a lot to do. We've got to put down the iPods and get busy. There's no time for hand-wringing and whining. As Yogi Berra said, our whole future's ahead of us.

Posted by Hugo Albert Orwell at 05:18 PM | Permalink | TrackBacks (0)

Source: Agence France-Presse

by Sebastian Smith
December 28, 2006

MOSCOW (AFP) - The tense countdown to Russia's threatened cutting of gas supplies to Belarus, which could also hit deliveries to western Europe, has entered its final hours of confrontation over pricing.

Negotiations continued in Moscow Thursday, said Sergei Kupriyanov, spokesman for Russia's state-controlled monopoly Gazprom.

He refused to give details of the talks, slightly more than three days before a deadline laid down by Russia which is causing concern in the
European Union.

Gazprom chairman Alexei Miller has warned that gas supplies to Belarus will be turned off at 10:00 am in Moscow (0700 GMT) on Monday if Belarus, an ex-Soviet republic, does not agree to a more than doubling of price.

With Gazprom and Belarus both warning of a knock-on effect for western European customers who rely on Belarus as a transit point for Russian gas, the crisis increasingly resembles the showdown between Russia and Ukraine at New Year's 2006.

"A second gas war has been declared," said the respected Vedomosti business daily in Moscow. "Belarus will be cut off, like Ukraine."

The European Union, where Russian imports accounted for 24 percent of total gas requirements in 2005, is watching closely.

"I call on the two parties to reach as soon as possible a satisfactory agreement that does not put in question gas transits to the EU," Energy Commissioner Andris Piebalgs said in a statement.

"The Commission is following the situation very closely since it may affect gas supplies to the European Union."

Gazprom accuses Belarus of preparing to siphon off gas destined for Europe in the event of a cut to its domestic supplies and has warned that compensation for a loss in volumes might be impossible.

Belarus argues that if it is unable to agree with Gazprom on a new contract for its domestic supplies in 2007, then the contract governing transit of Russian gas westward will also become void.

Gazprom says the price increase would bring Belarus' fee closer to international standards and away from Soviet-style subsidies, while critics accuse the giant company of using energy as a weapon to bring neighbouring countries under Kremlin dominance.

Ironically, the dispute pits Belarus' President Alexander Lukashenko against the one major country that supports his authoritarian regime.

In contrast, Gazprom's strong-arm tactics in Ukraine 12 months ago, culminating with the brief cut-off in gas, were widely seen as part of a Kremlin strategy to weaken strongly pro-Western President Viktor Yushchenko.

The current crisis is on a smaller scale than the Ukraine episode, since just 20 percent of Russian gas exports to Europe go through Belarus, compared to 80 percent through Ukraine.

Last winter was also one of the coldest recorded in Europe.

So far, this winter is one of the mildest and so demand for energy is lower. According to the European Union, reserves are big enough to deal with any temporary shortfall.

Russia's media predicted that Belarus, a country of 10.3 million people sandwiched between Russia and the European Union, will find the cost too high to maintain defiance for long.

"Unpredictable he may be, but Lukashenko will not continue the conflict with Russia for long," Vedomosti quoted an unnamed Kremlin official as saying, suggesting that Lukashenko might accept a compromise in which Belarus took a loan from Moscow that covered the increased gas price.

However, commentators in Belarus said the country was ready to stand firm.

"In the end they will come to a deal. Belarus has its own cards in this fight -- transit, Russian military bases stationed on its territory, political relations," said analyst Andrei Fyodorov.

Belarus currently pays Gazprom a highly subsidised 46.68 dollars per 1,000 cubic metres of gas and Gazprom originally demanded an increase to 200 dollars, which is closer to western European prices, unless Belarus agreed to sell 50 percent of its pipeline operator Beltransgaz.

This would give the Russian state-owned giant an important strategic foothold on the European Union's eastern border.

Gazprom has since reduced that demand to 105 dollars per 1,000 cubic metres -- 75 dollars per 1,000 cubic metres in cash payments, plus the equivalent of another 30 dollars in shares of Beltransgas.

Belarus is so far refusing to accept the deal.

"Russia is not only after extra revenues, but wants to take under control certain parts of the property in neighbouring countries," Belarussian parliament deputy Anatoly Krasutsky said. "The government should have diversified its energy sources earlier, but you learn by your mistakes."

Posted by Hugo Albert Orwell at 09:32 AM | Permalink | TrackBacks (0)

As the symptoms of peak oil and gas production become more evident, the competition for these resources will likely also become more visible. There is trouble brewing in Eastern Europe over former Soviet countries who are unhappy with the prices they are being forced to pay Russia for badly needed natural gas supplies.

Since Russia supplies much of Europe with natural gas through pipelines that run through Belarus and Ukraine, those countries have a degree of leverage over Russia in their negotiations for the price of their own gas deliveries.

------

Source: Reuters

By Andrei Makhovsky and Dmitry Zhdannikov
2 hours, 16 minutes ago

MINSK/MOSCOW (Reuters) - Belarus issued an implicit threat that it could stop Russian gas deliveries through its pipelines to western Europe unless Russia's gas monopoly Gazprom relented on demands Minsk pay steep price increases in 2007.

The threat is likely to revive unpleasant memories of gas cuts to Europe last year when Russia was locked in a similar pricing row with Ukraine. But Belarus ships smaller volumes of gas to Europe via its territory and Russia said Europe was safe as Gazprom (GAZP.MM) had stockpiled extra gas in Germany.
"We are inter-dependent. If I don't have a domestic gas supply contract, Gazprom won't have a transit deal," Belarus's Deputy Prime Minister Vladimir Semashko said at Minsk airport late on Tuesday after his return from failed talks in Moscow.

About 80 percent of Russian exports to Europe are pumped via Ukraine, with the rest going through Belarus. Russia supplies a quarter of Europe's gas to more than 20 countries.

Belarus, whose President Alexander Lukashenko is accused in the West of crushing human rights, has long been a Russian ally.

Vladimir Putin's distaste for Belarus's Soviet-style economic policy and reluctance to share enterprises with Moscow.

Semashko did not say whether Belarus was prepared to stop all gas transit via its territory.

Two years ago, Minsk took no such action in a similar dispute, but Gazprom accused it of taking gas from transit pipelines for its domestic needs. Gazprom said it viewed Semashko's latest comments as a new threat to steal gas.

Two years ago, the row generated no major criticism of Russia in the West due to Lukashenko's poor political image.

Last year, Russia came under fire from politicians in the European Union and the United States following gas cuts to Ukraine. The dispute accentuated rocky relations between Moscow and Ukraine's pro-Western leadership, since tempered by the return of a prime minister friendlier to Russia.

U.S. ACCUSATION

The sniping reached a climax when Vice President smaller neighbors.

Some analysts say Moscow may decide against resorting to cuts this year given the Ukrainian experience and the growing importance of Germany as its top trade partner.

"Belarus has a very strong negotiating position with its gas transportation infrastructure and we believe that Gazprom will have to be very flexible with its Belarus pricing policy," said Yelena Savchik from Renaissance Capital brokerage.

But a Gazprom source told Reuters some top employees had been told to cancel New Year holidays: "It looks exactly like one year ago with Ukraine."

Gazprom still hopes for a deal to allow Belarus to receive supplies and Gazprom to transit gas to Poland and Germany.

Gazprom says it offered major concessions to Belarus on Tuesday such as lowering the proposed price to $110 per 1,000 cubic meters from the previous proposal of $200. On Wednesday, it lowered its offer still further to $105. Gazprom has also said the country could pay part of its bill in assets.

Belarus now pays $46.7, or as much as consumers in Russia. By comparison, Gazprom will charge Moldova $170 in 2007 and Georgia $235, while consumers in Europe pay over $250.

Posted by Hugo Albert Orwell at 10:15 AM | Permalink | TrackBacks (0)

Source: Kuwait Times

By Peter J. Cooper
December 25, 2006

KUWAIT: It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field's 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate. Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields.

However, it is surely a landmark moment when the world's second largest oil field begins to run dry. For Burgan has been pumping oil for almost 60 years and accounts for more than half of Kuwait's proven oil reserves. This is also not what forecasters are currently assuming.

Last week the International Energy Agency's report said output from the Greater Burgan area will be 1.64 million barrels a day in 2020 and 1.53 million barrels per day in 2030. Is this now a realistic scenario?

The news about the Burgan oil field also lends credence to the controversial opinions of investment banker and geologist Matthew Simmons. His book 'Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy' claims that ageing Saudi oil fields also face serious production falls.

The implications for the global economy are indeed serious. If the world oil supply begins to run dry then the upward pressure on oil prices will be inexorable. For the oil producers this will come as a compensation for declining output, and cushion them against an economic collapse.

However, the oil consumers then face a major energy crisis. Industrialized economies are still far too dependent on oil. And the pricing mechanism of declining oil reserves will press them into further diversification of energy supplies, particularly nuclear, wind and solar power.

All this was foreshadowed in the energy crisis of the late 1970s when a serious inflection in oil supply by the year 2000 was clearly forecast. How ironic that those earlier forecasts now look correct, while more modern and recent forecasts begin to look over optimistic and out-of-date with geological reality.

Nobody can change the geology, and forces of nature that laid down reserves of oil and gas over millions and millions of years. Could it be that we have been blinded by technological advances into thinking that there is some way to beat nature?

The natural world has an uncanny ability to hit back at the arrogance of man, and perhaps a reassessment of reality at this point is called for, rather than a reliance on oil statistics that may owe more to political manoeuvring than geological facts. - AME Info FZ LLC.

Posted by Hugo Albert Orwell at 10:12 PM | Permalink | TrackBacks (0)

Source: Falls Curch News Press Online

By Tom Whipple
Thursday, 07 December 2006

On November 29, the Washington Post carried an op-ed by Nawaf Obaid, an advisor to the Saudi government. Despite the obligatory "the opinions expressed are his own", and a press release denying government involvement, the piece clearly carries an important message from Saudi King Abdullah to President Bush, Washington, and the American people.

"Stepping Into Iraq" starts by reminding President Bush that in February 2003 the Saudi Foreign Minister had warned him that if the US removed Saddam Hussein by force he would only be solving one problem by creating five more.

Obaid goes on to point out that had the President followed the Foreign Minister's advice, Iraq would not now be facing "full blown civil war and disintegration."

The thrust of the message, however, is a thinly veiled warning to the US not to walk away from Iraq. Obaid quotes the Saudi Ambassador who said last month: "Since America came into Iraq uninvited, it should not leave Iraq uninvited." And Obaid adds, "If it does, one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shiite militias from butchering Iraqi Sunnis."

"As the economic powerhouse of the Middle East, the birthplace of Islam and the de facto leader of the world's Sunni community (which comprises 85 percent of all Muslims), Saudi Arabia has both the means and the religious responsibility to intervene," he continues.

The Saudis, of course, are reminding us that while America can get on its ships and planes and go home, Saudi Arabia is going to be left right at the heart of what is starting to look more and more like the beginnings of a regional war. Should the fighting increase, it is only a manner of time before the vital interests or perhaps the very existence of the Kingdom, or at least the Royal family, is threatened.

The Saudis are clear about why they are sending this message to America. "Just a few months ago it was unthinkable that President Bush would prematurely withdraw a significant number of American troops from Iraq. But it seems possible today." Obviously the American election, with the unmistakable message that the American voters want out is much on Saudi minds. "The Saudi leadership is preparing to substantially revise its Iraq policy," says Obaid.

The critical part of all this is just what the Saudis are going to do in the face of an American threat to withdraw. The op-ed lists three options. First Riyadh could give their Sunni kinsmen (money, arms and logistical support. So far they claim to have refrained from doing this because the Sunni insurgents were busy shooting and blowing up Americans so it was considered highly impolitic to aid them. This of course shows commendable self-restraint as the Iranians have been supporting the Shiites for years.

The second Saudi option would be to fund, equip, and train new "Sunni brigades" to offset the Shiite militias. This of course would formalize the "civil war."

Now, however, we get to the Saudis' third option as suggested by Obaid— oil. "King Abdullah may decide to strangle Iranian funding of the militias through oil policy." "If the Saudis boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices."

Now the notion of the Saudis flooding the 85 million barrel a day world oil market with enough oil to halve the world price and destroy the Iranian economy is a stretch. Saudi oil production has been dropping in recent months and some analysts believe this is from necessity not choice. Even if the Saudis were to attempt to increase output, it would likely be hard-to-sell heavy crude, and the effort would probably damage future oil production by over producing existing fields.

The Saudis may no longer be able to increase production enough to attain their political objectives, however, there is no reason why they can't cut their production. Cutting is easy and it can be done is many ways varying from an overt embargo as happened in the 1970's to more subtle reductions.

Why are the Saudi's continuing to produce circa 9 million barrels a day? Given the tight worldwide oil market, the Saudi's could cut their production in half; the price of oil would more that double; they would get richer; their oil fields would get a much needed rest; and there would be oil left for their great-grand children to export.

What keeps them from cutting production and reaping all these benefits? That too is simple, their relationship with the USA. So long as the US was their number one protector, and needed the oil to keep flowing, the Saudis historically would bend over backwards to help Washington out. The only exception was the short-lived oil boycott back in 1973.

Now, however, everything has changed. Against Saudi advice, the US charged into Baghdad and set 27 million Iraqis at each other's throats. America's partners in the invading "coalition" are bailing out one by one. The US people have just voted to change something and it is clear that "stay the course" is not going to obtain for much longer.

The key Saudi foreign policy objective at the minute clearly is to keep sufficient US military forces in Iraq to keep the lid on the situation for as long as it takes to keep the mess from spilling over into Saudi Arabia itself.

The threat to the existence of the Saudi Royal Family from a spreading civil war now is much greater than any threat from an unhappy Washington. Can anyone imagine the new US Congress voting to invade some other large Middle Eastern country in the near future? With what?

Could a major cutback in Saudi oil production bring down America? Maybe not, but it sure could do a lot of harm. The most blatant action would be cut their oil production in half. Taking 4-5 million barrels a day off the world oil market would get everybody's attention very quickly. Oil prices would certainly go well over $100 per barrel. In short order, the US and world economies would suffer greatly.

The Saudis could, however, bring pressure without doing anything so provocative as a major production cut. Simply ratcheting down production in an unobtrusive manner should be enough to scare Washington into reconsidering leaving Riyadh, as the leader of the world's Sunnis to deal with the mess on its own.

Just before President Bush met with the Iraqi Prime Minister in Jordan last week, Vice President Cheney was summoned to Riyadh to receive the whole Saudi message. It may be many years before we learn exactly what that message was, but already President Bush is back to talking about "staying the course."

It may be a lot harder, or a lot more expensive, for the US to get out of Iraq than anyone ever thought.

Posted by Hugo Albert Orwell at 09:54 AM | Permalink | TrackBacks (0)

Source: RTE Business

November 28, 2006

ASPO to hold key oil conference in Cork

November 28, 2006 13:21

The Association for the Study of Peak Oil and Gas (ASPO) is to hold its sixth International Conference in UCC in Cork in September 2007. The conference will be sponsored by NTR.

ASPO is a global not-for-profit organisation which aims to raise awareness about the timing of the peak of the world's production of oil and gas.

The scientists and engineers who set up ASPO five years ago have assembled a data base and have used this to make an independent assessment of future hydrocarbon supply. This suggests that the generally held opinion that the world can rely on oil supplies continuing to meet demand for several decades more is simply wrong.

'Ireland may well be one of the countries which will be most affected by oil and gas supply failing to meet demand,' commented Jeremy Gilbert, ASPO President.

'Holding the ASPO Conference in Ireland provides a great opportunity for our politicians and decision makers to become better informed and to begin developing strategies for dealing with a frightening situation,' he said.

This year's conference was held in Italy.

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Source: Popular Mechanics

BY Jeff Wise
Published in the November, 2006 issue

WHEN ASSESSING THE State of the Union in 2003, President Bush declared it was time to take a crucial step toward protecting our environment. He announced a $1.2 billion initiative to begin developing a national hydrogen infrastructure: a coast-to-coast network of facilities that would produce and distribute the hydrogen for powering hundreds of millions of fuel cell vehicles. Backed by a national commitment, he said, "our scientists and engineers will overcome obstacles to taking these cars from laboratory to showroom, so that the first car driven by a child born today could be powered by hydrogen, and pollution-free." With two years to go on the first, $720 million phase of the plan, PM asks that perennial question of every automotive journey: Are we almost there?

And the inevitable answer from the front seat: No. Promises of a thriving hydrogen economy — one that supports not only cars and trucks, but cellphones, computers, homes and whole neighborhoods — date back long before this presidency, and the road to fulfilling them stretches far beyond its horizon.

The Department of Energy projects the nation's consumption of fossil fuels will continue to rise — increasing 34 percent by 2030. When burned, these carbon-based fuels release millions of tons of carbon dioxide into the atmosphere, where the gas traps heat and is believed to contribute to global warming.

At first glance, hydrogen would seem an ideal substitute for these problematic fuels. Pound for pound, hydrogen contains almost three times as much energy as natural gas, and when consumed its only emission is pure, plain water. But unlike oil and gas, hydrogen is not a fuel. It is a way of storing or transporting energy. You have to make it before you can use it — generally by extracting hydrogen from fossil fuels, or by using electricity to split it from water.

And while oil and gas are easy to transport in pipelines and fuel tanks — they pack a lot of energy into a dense, stable form — hydrogen presents a host of technical and economic challenges. The lightest gas in the universe isn't easy to corral. Skeptics say that hydrogen promises to be a needlessly expensive solution for applications for which simpler, cheaper and cleaner alternatives already exist. "You have to step back and ask, 'What is the point?'" says Joseph Romm, executive director of the Center for Energy & Climate Solutions.

Though advocates promote hydrogen as a panacea for energy needs ranging from consumer electronics to home power, its real impact will likely occur on the nation's highways. After all, transportation represents two-thirds of U.S. oil consumption. "We're working on biofuels, ethanol, biodiesel and other technologies," says David Garmin, assistant secretary of energy, "but it's only hydrogen, ultimately, over the long term, that can delink light-duty transportation from petroleum entirely."

The Big Three U.S. automakers, as well as Toyota, Honda, BMW and Nissan, have all been preparing for that day. Fuel cell vehicles can now travel 300 miles on 17.6 pounds of hydrogen and achieve speeds of up to 132 mph. But without critical infrastructure, there will be no hydrogen economy. And the practical employment of hydrogen power involves major hurdles at every step — production, storage, distribution and use. Here's how those challenges stack up.

HURDLE 1: Production
The United States already uses some 10 million tons of hydrogen each year for industrial purposes, such as making fertilizer and refining petroleum. If hydrogen-powered vehicles are to become the norm, we'll need at least 10 times more. The challenge will be to produce it in an efficient and environmentally friendly way.

FOSSIL FUELS: At present, 95 percent of America's hydrogen is produced from natural gas. Through a process called steam methane reformation, high temperature and pressure break the hydrocarbon into hydrogen and carbon oxides — including carbon dioxide, which is released into the atmosphere as a greenhouse gas. Over the next 10 or 20 years, fossil fuels most likely will continue to be the main feedstock for the hydrogen economy. And there's the rub: Using dirty energy to make clean energy doesn't solve the pollution problem-it just moves it around. "As a CO2 reducer, hydrogen stinks," Romm says.

Capturing that carbon dioxide and trapping it underground would make the process more environmentally friendly. In July, General Electric and BP Amoco PLC announced plans to develop as many as 15 power plants over the next 10 years that will strip hydrogen from natural gas to generate electricity; the waste carbon dioxide will be pumped into depleted oil and gas fields. And the Department of Energy is largely funding a 10-year, $950 million project to build a coal-fed plant that will produce hydrogen to make electricity, and likewise lock away carbon dioxide to achieve what it bills as "the world's first zero-emissions fossil fuel plant."

Whether carbon dioxide will remain underground in large-scale operations remains to be seen. In addition, natural gas is a limited resource; the cost of hydrogen would be subject to its price fluctuations.

ELECTROLYSIS: Most of the remainder of today's hydrogen is made by electrically splitting water into its constituent parts, hydrogen and oxygen. This year, a PM Breakthrough Award went to GE's Richard Bourgeois for designing an electrolyzer that could drastically reduce the cost of that process. But because fossil fuels generate more than 70 percent of the nation's electrical power, hydrogen produced from the grid would still be a significant source of greenhouse gas. If solar, wind or other renewable resources generate the electricity, hydrogen could be produced without any carbon emissions at all.

NUCLEAR POWER: Next-generation nuclear power plants will reach temperatures high enough to produce hydrogen as well as electricity, either by adding steam and heat to the electrolysis process, or by adding heat to a series of chemical reactions that split the hydrogen from water. Though promising in the lab, this technology won't be proved until the first Generation IV plants come on line — around 2020.

HURDLE 2: Storage
At room temperature and pressure, hydrogen's density is so low that it contains less than one-three-hundredth the energy in an equivalent volume of gasoline. In order to fit into a reasonably sized storage tank, hydrogen has to be somehow squeezed into a denser form.

LIQUEFACTION: Chilled to near absolute zero, hydrogen gas turns into a liquid containing one-quarter the energy in an equivalent volume of gasoline. The technology is well-proven: For decades, NASA has used liquid hydrogen to power vehicles such as the space shuttle. The cooling process requires a lot of energy, though-roughly a third of the amount held in the hydrogen. Storage tanks are bulky, heavy and expensive.

COMPRESSION: Some hydrogen-powered vehicles use tanks of room-temperature hydrogen compressed to an astounding 10,000 psi. The Sequel, which GM unveiled in January 2005, carries 8 kilograms of compressed hydrogen this way-enough to power the vehicle for 300 miles. Refueling with compressed hydrogen is relatively fast and simple. But even compressed, hydrogen requires large- volume tanks. They take up four to five times as much space as a gas tank with an equivalent mileage range. Then again, fuel cell cars can accommodate bigger tanks because they contain fewer mechanical parts.

SOLID-STATE: Certain compounds can trap hydrogen molecules at room temperature and pressure, then release them upon demand. So far, the most promising research has been conducted with a class of materials called metal hydrides. These materials are stable, but heavy: A 700-pound tank might hold a few hours' fuel. However, exotic compounds now being studied could provide a breakthrough to make hydrogen storage truly practical. "High-pressure tanks are a stopgap until we can develop materials that will allow us to do solid-state storage efficiently," says Dan O'Connell, a director of GM's hydrogen vehicle program.

HURDLE 3: Distribution
Even in portable form, hydrogen is a tough substance to move from place to place. It can embrittle steel and other metals, weakening them to the point of fracture.

CLEAN FUEL: This fueling station in Burlington, Vt., uses electricity to convert water into hydrogen for powering fuel cell cars. It is part of a Department of Energy program for testing alternative fuels in colder climates.

TRUCKING AND RAIL: Currently, most hydrogen is transported either in liquid form by tankers or as compressed gas in cylinders by trailers. Both methods are inefficient. Trucking compressed hydrogen 150 miles, for instance, burns diesel equivalent to 11 percent of the energy the hydrogen stores. It also requires a lot of round trips: A 44-ton vehicle that can carry enough gasoline to refuel 800 cars could only carry enough hydrogen to fuel 80 vehicles.

PIPELINES: One way to avoid this endless back-and-forth would be to send the hydrogen through a pipeline. About 700 miles of hydrogen pipelines now operate in the States, generally near large users such as oil refineries. The longest in the world is a 250-mile line between Belgium and France. Treating pipelines to protect them from embrittlement and high pressure makes them expensive up front-about $1 million per mile. But once built, they are the cheapest way to deliver high volumes of hydrogen.

LOCAL PRODUCTION: Given the difficulty of transporting hydrogen, why not just make it where you need it? That's what's done at roughly half the 36 hydrogen fueling stations currently operating in the U.S. Four rely on natural gas; the rest use electrolysis. In 2003, Honda introduced a Home Energy Station that performs steam reformation right in the owner's garage-but because natural gas is the feedstock, it still releases carbon dioxide to the atmosphere.

A greenhouse gas-free approach would use on-site wind or solar power to produce hydrogen through electrolysis. Honda also designed a solar-powered hydrogen refueling station, which has been operating at the company's California lab since 2001. If the national power supply becomes more eco-friendly, clean electrolysis could run off the grid.

ON-BOARD PRODUCTION: Several prototype vehicles make their own hydrogen from stored hydrocarbons, eliminating the question of distribution altogether. The DaimlerChrysler NECAR 3, for example, produces hydrogen from methanol. Researchers are also experimenting with more futuristic on-board production technologies, which combine ordinary water with reagents like boron or aluminum to produce hydrogen, oxygen and a metal oxide residue. These, however, are still a long way off.

HURDLE 4: Use
Once hydrogen reaches consumers, is there anything they can do with it except drive vehicles? Home energy generation is one other option. The question is whether hydrogen would be more practical than current methods. Hydrogen produced by steam reformation or by electrolysis loses energy when it is converted into electricity. The resulting efficiency is roughly equal to that of today's power plants — which pay a lot less for raw materials. Direct generation of electricity through wind and solar power will also be more efficient for most stationary applications. That leaves transportation as the most promising use for hydrogen.

INTERNAL COMBUSTION: The most straight-forward approach is to burn hydrogen in an adapted model of your garden-variety internal-combustion engine (ICE). Since little modification is required, these engines are relatively cheap, and 25 percent more efficient than gasoline-powered engines. BMW built its first hydrogen ICE back in the 1970s, and the concept still has legs: Ford began production of a hydrogen ICE shuttle bus last July.

FUEL CELL: First invented in 1839, a fuel cell combines hydrogen and oxygen to generate electricity without any moving parts. Several different varieties exist, but only the proton exchange membrane (PEM) fuel cell is lightweight and responsive enough to be practical for vehicle use. Though twice as efficient as ICEs, PEM fuel cells are hindered by high prices — even in mass production, they would currently cost about $36,000 each.

Once the technical hurdles are crossed, hydrogen's huge price tag may still make the technology prohibitive. A recent analysis by the Department of Energy projected that a supply network adequate for even 40 percent of the light-duty fleet could cost more than $500 billion. And that leads to a classic chicken-and-egg problem: How do you get millions of Americans to buy hydrogen-powered vehicles before there's an infrastructure in place to refuel them? And how do you get energy companies to build that infrastructure before there's a potential customer base?

"Companies are not willing to invest if they don't think there's going to be a market," says Daniel Sperling, director of the Institute of Transportation Studies at UC Davis. "The government has to be behind it. There has to be leadership."

There's reason to hope the technology will advance even without much government involvement. Hydrogen fuel cells already replace batteries in niche equipment, such as TV cameras and forklifts, and provide power at remote locations, such as at cellphone towers. They even power the police station in New York's Central Park. As these applications continue to develop, they will force advances in technology that will make hydrogen vehicles more feasible. Even then, hydrogen might make the most sense for fleet vehicles that don't require widespread infrastructure for service and refueling.

Ultimately, hydrogen may be just one part of a whole suite of energy alternatives. Any one of them will involve investing heavily in new infrastructure. Though the price tag will be steep, we can't afford oil's environmental, economic and political drawbacks any longer.

SIDE BAR:

Hydrogen: How To Make it or Break It
By Alex Hutchinson
Diagram by Transluszent.de

HYDROGEN IS THE universe's simplest atom: a single electron orbiting a single proton. In a fuel cell, incoming hydrogen gas is separated by a catalyst at the anode into protons and electrons. The protons pass directly through a proton exchange membrane (PEM), while electrons are forced through an external circuit, causing electric current to flow. When the protons and electrons meet at the cathode, they join with oxygen to form water and heat, which are released as exhaust.

A single fuel cell produces just over 1 volt, so hundreds are stacked together for typical applications. PEM fuel cells, used in NASA's Gemini flights in the 1960s, are the design of choice for fuel cell cars, but other configurations are suited for applications ranging from laptops to power plants.

Electrolysis is the exact opposite process. Electricity from a power supply splits incoming water into protons, electrons and oxygen, which is released as a gas. Electrons reunite with protons at the cathode to produce hydrogen gas.

Other electrolysis designs being developed use solid-oxide membranes instead of PEMs, which improve efficiency but require operating temperatures of 900 to 1500 F — heat that could be supplied by nuclear reactors.

Posted by Hugo Albert Orwell at 03:32 PM | Permalink | TrackBacks (0)

Source: Representative Roscoe Bartlett Website

May 2, 2006 Special Orders Speech

By Congressman Roscoe Bartlett
Re: Oil Crisis

The SPEAKER pro tempore (Ms. Foxx). Under the Speaker's announced policy of January 4, 2005, the gentleman from Maryland (Mr. Bartlett) is recognized for half of the time remaining before midnight.

Mr. BARTLETT of Maryland. Madam Speaker, I have here in my hands two pretty big reports that were paid for by our government and have for reasons that it is difficult for me to understand been pretty much ignored apparently by the organizations that paid for them.

The first of these is a big report paid for by the Department of Energy called The Peaking of World Oil Production: Impacts, Mitigation and Risk Management. This is generally known as the Hirsch Report, because the project leader was Dr. Robert Hirsch from SAIC, a very prestigious scientific and engineering organization. This report is dated February, 2005.

For reasons that we are trying to find, this was bottled up, apparently, inside the Department of Energy, because it didn't become publicly available until several months after that.

The second report I have here is the report by the U.S. Army Corps of Engineers. This obviously is paid for by the Army. It is dated September of 2005, and it was just about 2 months ago that it finally got out of the Pentagon into the public. This one is called Energy Trends and Their Implications For U.S. Army Installations. I would submit that wherever they mention ``Army,'' you could substitute ``the United States'' and it would be completely appropriate.

What I would like to do for the first few minutes is to look at some of the comments and recommendations in these two reports; and I would like to keep asking the question, why have these two government agencies which paid for these reports done essentially nothing to promulgate this information across the country? Rather, it would seem that there was an intent to keep this information from the public, because the Hirsch Report was bottled up inside the Department of Energy for several months, and the Army Corps of Engineers report is dated September of 2005, and it says on the cover here, ``Approved for public release. Distribution is unlimited.'' But there was essentially no distribution of that until just about 2 months ago.

As you will see, Madam Speaker, if the content of these two reports is correct, if their observations and recommendations are correct, you would have expected these two government agencies to be using every vehicle at their disposal to get this information out to the public.

Let's look first at a few quotes from the Hirsch Report. The first here says, ``The peaking of world oil production presents the United States and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically,'' oil was almost $75 a barrel today, ``and without timely mitigation, the economic, social and political costs will be unprecedented.

``Viable mitigation options exist on both the supply and demand sides, but to have substantial impact they must be initiated more than a decade in advance of peaking.''
A little later we will talk more about this. I am not sure that this is exactly the way that I would have articulated our challenge. We will talk about that a little later.

``Dealing with world oil production peaking will be extremely complex, involve literally trillions of dollars and require many years of intense effort.''
Now another quote from this Hirsch Report. ``We cannot conceive of any affordable government-sponsored crash program to accelerate normal replacement schedules so as to incorporate higher energy efficiency technologies into the privately owned transportation sector. Significant improvements in energy efficiency will thus be inherently time-consuming, of the order of a decade or more.''

If we are talking about transportation, Madam Speaker, that is indeed true. Because the average automobile and small truck is in the fleet about 17-18 years and the average 18-wheeler about 28 years. So any improvements that we ever make, we are making in energy efficiency in automobiles and trucks, is going to take quite some time to show any meaningful effect because of how long they are in the fleet.
Now a third quote from the Hirsch Report. Madam Speaker, I would like us to keep in our mind the question, if this is true and we have two reports, as you will see, that have reached essentially the same conclusion, we have no reason to believe there was any collusion between them. Indeed, their dates of publication are quite different, February to September. And if these observations and recommendations in these reports are in fact correct, then one might wonder why haven't these agencies been using every vehicle at their disposal to get this information out to the American public and to initiate programs to deal with these problems?

``World oil peaking is going to happen. World production of conventional oil will reach a maximum and decline thereafter. That maximum is called the peak. A number of competent forecasters project peaking within a decade. Others contend it will occur later. Prediction of the peaking is extremely difficult because of geological complexities, measurement problems, pricing variations, demand elasticity and political influences. Peaking will happen, but the timing is uncertain.''

Then this, Madam Speaker, a very significant statement. ``Oil peaking presents a unique challenge,'' they say, and then this statement. ``The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the
problem will be pervasive and will not be temporary. Previous energy transitions, wood to coal and coal to oil, were gradual and evolutionary. Oil peaking will be abrupt and revolutionary.''

Now I would like to read a few of the quotes and recommendations from the Corps of Engineers study just out about 2 months ago, although the date was September of last year.

``Historically, no other energy source equals oil's intrinsic qualities of extractability, transportability, versatility and cost. The qualities that enabled oil to take over from coal as the frontline energy source for the industrialized world in the middle of the 20th century are as relevant today as they were then. Oil's many advantages provide 1- 1/3 to 2 1/2 times more economic value per million BTUs than coal. Currently, there is no viable substitute for petroleum.''

Madam Speaker, that is a startling statement. If in fact the world is peaking in oil production and there is no viable substitute for petroleum, wouldn't you think that the agencies paying for these studies would have used every vehicle available to them to get this word out to the American public and to articulate a rational program for dealing with this emergency?

``Oil prices may go significantly higher,'' they say, ``and some have predicted prices ranging up to $180 a barrel in a few years.'' Just under $75 today, $180 a barrel in a few years.

``In general, all non-renewable resources follow a natural supply curve: Production increases rapidly, slows, reaches a peak and then declines at a rapid pace, similar to its initial increase. The major question for petroleum is not whether production will peak, but when. There are many estimates of recoverable petroleum reserves, giving rise to many estimates of when peak oil will occur and how high the peak will be. A careful review of all of the estimates leads to the conclusion that world oil production may peak within a few short years, after which it will decline.'' Campbell and Deffeyes, several references here.

Let me digress for just a moment. One of these, Dr. Deffeyes, predicted that the peak did occur a couple of months ago, and he says he is no longer a prognosticator, he is now a historian, because the peak, he believes, is behind us.

``Once peak oil occurs, then the historic patterns of world oil demand and price cycles will cease. Unfortunately, Saudi Arabia has not been able to increase supply above its monthly production peak of April 2003.''

And I am reminded here of a recent book by Matt Simmons called Twilight in the Desert. He has done a very scholarly and exhaustive study of all of the open literature and believes that Saudi Arabia has peaked in oil production.

Iraq may also have significant excess capacity if it can be brought into production. Under Saddam Hussein, we got about 2 1/2 million barrels a day from Iraq; now we are lucky to get 1 1/2 million barrels a day.

Meanwhile, domestic oil production in both the lower 48 States and Alaska continues to decline. Many non-OPEC oil producers have also passed or are currently reaching their peaks of production. Indeed, Madam Speaker, of the 48 largest oil-producing countries in the world, 33 have already peaked.

And now their recommendations. And excuse me for reading, but to paraphrase this would not have quite the impact of reading exactly their words. The coming years will see significant increases in energy costs across the spectrum. Not only are energy costs an issue, but also reliability, availability, and security.

It is time to think strategically about energy and how the Army, and please substitute here the United States, should respond to the global and national energy picture. A path of enlightened self-interest is encouraged. The 21st century is not the 20th century.

Issues will play out differently and geopolitics will impact the energy posture of the Nation. Technology will change more rapidly and flexibility will be a crucial part of installation operations. This must also extend to the energy infrastructure and its operational concepts.

And then this very interesting statement: the days of inexpensive, convenient, abundant energy sources are quickly drawing to a close. When I read that, Madam Speaker, I was reminded of the short paragraph that Matt Savinar uses in introducing his discussion of peak oil.

He says: ``Dear reader. Civilization as we know it is coming to an end soon.'' I hope that he is overly pessimistic. We will see. Domestic natural gas production peaked in 1973. Now, note this statistic, Madam Speaker: the proved domestic reserve lifetime for natural gas at current consumption rates is about 8.4 years.

What this says is, if we can get all of our gas from our resources, it would last 8.4 years. Of course, we cannot get it out that fast. So we are importing gas. But that is all we have remaining is 8.4 years. This is the Corps of Engineers.

The proved world reserve lifetime for natural gas is about 40 years, but will follow a traditional rise to a peak, then a rapid decline. Domestic oil production peaked in 1970 and continues to decline. This is a really startling statistic. Proved domestic reserve lifetime for oil is about 3.4 years.

That means if we could pump oil as fast as we are using it, our 2 percent of the world's reserve would last us, at the rate at which we are using oil, 3.4 years.

World oil production is at or near its peak; and current world demand exceeds the supply, which is why oil is about $75 a barrel. Saudi Arabia is considered to be the bellwether nation for oil production and has not increased production since April of 2003. After peak production, supply no longer meets demand; prices and competition increase.

World proved reserves lifetime for oil is about 41 years, most of this at a declining availability. Our current throwaway nuclear cycle uses up the world reserve of low-cost uranium in about 20 years. We will see significant depletion of Earth's finite fossil resources in this century. We must act now to develop the technology and infrastructure necessary to transition to other sources.

This is dated September of last year, Madam Speaker. Have you seen anybody in authority in our country telling the American people this? We must act now to develop the technology and infrastructure necessary to transition to other energy sources.
Policy changes leap ahead of technology breakthroughs, cultural changes and significant investment is requisite for this new energy future. Time is essential to enact these changes. The process should begin now.

Indeed, if they had written this 20 years ago, they would use exactly that same language. Because we really should have started some 20 years ago.

Madam Speaker, what is all of this about? What are they talking about? To understand that, we need to go back about six decades and to the life of a very, now very famous oil geologist, Dr. M. King Hubbert, who worked for the Shell Oil Company.

In 1956, as a result of his studies, he published a paper that the 50th-year anniversary of that was March 8, in which he predicted that the United States would peak in oil production about 1970.

Now this was revolutionary. Because at that time I believe we were the largest producer of oil in the world, and probably the largest exporter of oil in the world. Shell Oil Company pleaded with him not to publish a paper, that we would make him and them look really silly.

He published the paper anyhow. And 14 years later when right on target we peaked, he became kind of a celebrity. What we have here, Madam Speaker, is his predicted curve, the smooth green curve. And then the more ragged curve, green curve with the largest symbols represents the actual data points.

And you see that right on schedule in 1970, oil production peaked. Now, this is the lower 48. He did not know about Alaska at that time, and in just a moment we will look at another chart which includes Alaska.

The red there, by the way, is the Soviet Union. More oil than we, peaked just a bit after us. They kind of fell apart when the Soviet Union fell apart, and they are now having a second small peak. But after that it will be continually downhill.
The next chart shows where we have been getting our oil from. Not just in the lower 48. And that is this blue curve and the dark blue one under it, Texas and the rest of the United States. But then you see the natural gas liquids and the Alaska oil, and the Gulf of Mexico oil.

And you see that in 1970 we peaked, and just a little blip in the downhill side of what is called Hubbert's peak here. I remember particularly, Madam Speaker, the fabled Gulf of Mexico oil discoveries which were supposed to get us home free. That is the yellow on this chart. Notice the relatively trifling contribution that the Gulf of Mexico oil discoveries made, about 4,000 wells out there. We were reminded of that last fall with these hurricanes, when a number of them were damaged.

The next chart is from the Hirsch report, and that shows you what we do with this oil. It is really kind of interesting. The light blue here represents transportation. That is about 70 percent of all of the energy from the oil that we use is used in transportation. Then there is industrial and a little bit of electric power and a little bit commercially. But the major part of our oil is used in transportation.
That is a liquid fuel. And, you know, the challenge is to find something to replace that. The next chart is a really interesting one, and we could spend a long time on this chart, because it has so much information on it.

But I want to look at it just in gross form here. The bar graphs here represent the discovery of oil, and you see that way back in 1940 we were discovering some big fields of oil. And then a little later in the 1950s, the 1960s, the 1970s, we were discovering a lot of oil.

And our use of oil was very small then. The heavy black line here represents our use of oil, and notice that we were finding enormously more oil than we were using.
So there was every reason to believe that for the foreseeable future and beyond everything was going to be just fine, because we were finding enormous amounts of oil and we were not using very much oil. But then that all turned around about 1980.
Because at about that time, the discoveries of oil reached a maximum, and then they trailed off. And you can see it here on the downslope here. And in spite of improved techniques, in spite of intense drilling, year by year, we have found on the average less and less oil.

For those who are familiar with curves like this, it is quite obvious that the area under this curve, if we were to draw a smooth line through this discovery curve, the area under that curve represents the total volume of oil which has been discovered.
And the area under the consumption curve represents the total amount of oil that we have consumed. Now, it is very obvious that you cannot consume oil that you have not discovered, and so to find out how much consumption we can have in the future, all one needs to do is to look at the area under this discovery curve, and then to project where you think the consumption curve is going.

Now, this chart has peaking occurring, what, in 5 years or so, about 2010. There are a number of people who believe that peaking has occurred about now or will occur very shortly.

The lightly shaded part of this graph, of course, is to the future; and, Madam Speaker, you can make that future within limits look about any way you want to make it look. For instance, if we use enhanced oil recovery, and we drill a lot more wells, the United States has drilled 530,000 wells. I believe there are about 400 wells in Saudi Arabia and maybe 300 in Iraq, both of which have enormously more reserves than we have.

But if you vigorously go after this oil, you might get it sooner. But if you get it sooner, there will be less later, unless you are really good at enhanced oil recovery and you are able to get significantly more out of the ground. The next chart kind of puts this in long-range perspective, and this is a really interesting chart.
Looking at the top chart here, we are looking back about 400 years through history; and we see that the quadrillion Btus, it is so near the zero line here that you probably cannot see the difference. And then we began the Industrial Revolution in the late 1700s. And we began that with wood, of course. We denuded the hills of New England, the mountains of New England, carrying charcoal to England to make steel. We have a little furnace up here in Frederick County, and we denuded the hills of northern Frederick County to provide charcoal for that little furnace there.
The Industrial Revolution was stuttering with wood when we found coal and were able to utilize that. And then look what happened, Madam Speaker, when we discovered gas and oil. It just took off. This is an exponential curve at about a 2 percent growth rate.
In a moment we will show this same curve with different units on the ordinate abscissa, and it will appear to be a much less dramatic curve there because it really spread out the abscissa here.

But I would like to note that the world population has reasonably followed this energy cycle. So that we went from about one-half a billion to about 1 billion people here. Steady state for quite a long time until we now have between 6 and 7 billion people.
And that dramatic increase in the world's population was largely due to the incredible quantity and quality of energy from oil and natural gas. I would like to reflect for just a moment on the quality of this energy, the energy density of these fossil fuels.
One barrel of oil, and you will now pay a bit more than $100 for the refined product at the pump, 42 gallons, will buy you the work output of 12 people working all year for you.

If you worked really hard in your yard this weekend for a full day, I will get more work, more mechanical work out of an electric motor for less than 25 cents' worth of electricity. And that may be kind of humbling to recognize that we are worth less than 25 cents a day in terms of the energy available in these fossil fuels.
Madam Speaker, our children and certainly our grandchildren will look back at our generation and the generation of our parents, and I say that because my father lived almost half way through the age of oil, and they will wonder how we could have behaved the way we have behaved.

When we found this incredible resource, this wealth, we should have stopped and asked ourselves, what do we need to do so we can provide the most good for the most people for the longest time with this incredible wealth. It should have been obvious to everybody that this was not infinite. The earth is not made of oil. It is a finite resource.

We are now, as this chart shows in 5,000 years of recorded history, about 100, 150 years into the age of oil. In another 100, 150 years, we will be through the age of oil. What, then, when we have had to transition to the renewables?

Notice here, Madam Speaker, what happened in the 1970s. That was really quite dramatic. There was a worldwide recession, demand for oil fell, the price collapsed, and we reduced our energy consumption. It is now with China and India and the developing world demanding more and more oil increasing again at the same kind of a rate that it did up till 1970.

Madam Speaker, I would like to give one statistic that is just startling. Up until the Carter years, in every decade we used as much oil as had been used in all of previous history. What that means is, had we continued on that course, and fortunately we did not as this chart shows, but had we continued on that course when we had used up half of the world's supply of oil, only one decade of oil would have remained. In 5,000 years of recorded history, the age of oil would be just a blip, about 300 years long is all, out of 5,000 years of recorded history.
The next chart shows the predictions of some of the experts about when peaking should occur, and this is from the Hirsch report, and this was about a year ago, and they could not have known that Dr. Deffeyes was going to conclude that the peaking has already occurred. He gave a specific date for that, and he rather humorously said he is no longer a prognosticator, he is a historian.

Well, all these people believe the peak is going to occur in the next 5 years; and then there are a few that believe it will occur about 5 years after that. Then there are Serum, Shell Oil Company, a few who believe it will be sometime in the future. Nobody, Madam Speaker, will contend that we will not have peaking. It is not if. It is when.

The next chart is a simple depiction. It shows the same curve, that really dramatic one you saw a couple of charts ago, when we had this dramatic increase in the production of energy, same curve. You can make it short and very high or spread out, depending upon the units you use in the ordinate and the abscissa.

This is a 2 percent exponential growth rate, and notice that starts out rather slow, but 2 percent, leave the interest in the bank, it grows and grows till it is now getting quite steep, even on this expanded abscissa scale.

As you saw from the previous chart, most of the experts believe that oil peaking is either now or very shortly in the future. If, as we have indicated here, we are at this point, then the peaking will indeed occur a couple of years or so hence.

But notice that the discrepancy between the oil we would like to use, the demand curve and the oil which is available to use, begins before the curve. It will not be as smooth as this. It will be ups and downs, and oil may again fall down to $50 a barrel. That will be nice. Do not count on it.

What we have produced here is what is called a gap. That is a difference between what is available to use and what we would like to use; and, as the next chart shows, the Hirsch Report focused on the problems of filling that gap. What they did is look at the consequences of filling the gap, dependent upon when you start to fill the gap, and if you wait until peaking has occurred, you see zero here, that is when it has occurred. Then there will be significant shortfall. You will be able to do some mitigation.

In a few minutes, we will talk more about that mitigation; and I wonder if, in fact, we should try to mitigate or whether we need to effect a steady state where we can live happily and productively at the current energy level and thus leave a little more for our kids and our grandkids and a little more for the next few years just ahead of us.

What it shows here is that if you are going to have no supply shortfall, that you need to begin the mitigation 20 years before peaking occurs. Now, from all of the experts' predictions that we saw, that is going to be manifestly impossible because almost nobody believes that peaking is two decades from now. So what one would conclude from this is that there are going to be consequences.

The next chart shows what we would be using to peak. We would be using enhanced oil recovery, coal liquids; and, by the way, South Africa and Hitler's Germany demonstrated you can indeed do that; heavy oil, that is the oil shales, tar sands and so forth, gas-to-liquids and then vehicle efficiency.

I mentioned previously how long these vehicles stay in the fleet. If you start here, there will be several years before you notice any effect, and then slowly over 50 years. That is a little less than the average lifetime of the average car and pickup in the fleet and about half the average lifetime of an 18-wheeler in the fleet.

Madam Speaker, I would like to wonder if, in fact, we ought to be trying to fill the peak, that is, to fill this gap till there is no shortfalls so that the world can continue to use all the oil that it would like to use. Notice that, except for vehicle efficiency, we are dealing here with finite resources. They are not forever, and the more we use now, the less we will have to use in the future.

Today, we are amassing the largest intergenerational debt transfer in the history of the world. I would like not to include with that an enormous energy deficit that we are going to pass on to our kids and our grandkids. We are already burdening them with an enormous responsibility to not only run their government on current revenue but to pay back all of the money that we borrowed from their generations to run our government today. In good conscience, Madam Speaker, can we also borrow from their generations the fossil fuel energies which will be essential for establishing any reasonable quality of life in their generations?

I would submit that the challenge should not be to fill the gap. The challenge should rather be to establish an infrastructure and economy, lifestyles that can be interesting and productive and sustaining while we make the inevitable transition to renewables. These are all finite. You cannot fill that gap forever with these. As a matter of fact, for some of them, you cannot fill it very long.

The next chart shows us something about the consequences of excessive consumption. This is a really interesting chart. I would like to start here with this little insert where I think we are, and this is from our Energy Information Agency, and they get the data from the USGS. We talked to the Energy Information Agency, and they just use the information from USGS, and I think this is a rather meaningful misrepresentation of what the world will look like.

Madam Speaker, for any statisticians out there, it will be quite obvious that the 50 percent probability is not the mean. The most rightly thing to happen is the 95 percent probability. That is a high probability. It is the lesser, the lower amount of oil.

By the way, the 50 percent probability means that there could be a whole lot more oil. It also means there could be a whole lot less oil. You just do not know. What the Energy Information Agency does and the USGS is to assume that 50 percent probability is the mean. This is an unusual, and one might say bizarre, use of statistics, but using these statistics, you end up with almost twice the recoverable oil left in the world.

You see, they said that the ultimate recovery would be about 2 trillion barrels of oil with a 95 percent probability. We have already used about half of that, about 1 trillion barrels. So there is about 1 trillion left.

With the mean, which they say is expected, now that is not the expected value. The expected value is the 95 percent probability. That is the most probable. That is what it means. It is the most probable.

But with this assumption that that is the mean, which is a bizarre use of statistics, that pushes the peak out only from here at about 2000 to about 2016. So even if there is that much more oil there, and, by the way, only half of that yet to be pumped 2 trillion barrels have been found, you remember that earlier chart that showed the steep decline in discoveries, one must project something phenomenal in the future, that it will look just vastly different than the last few years. It would discover enormous basins of oil, and there is no expert out there that I know who believes that anything like that is going to happen. Notice that you push the peak out only about 10 years if you have that much more oil.

Now there is another interesting assumption that is made here, and that is if you can produce it with enhanced oil recovery and then you have a 10 percent decline, look what happens. You are really falling off a cliff.

The next chart kind of puts this in perspective; and it is these numbers, Madam Speaker, which prompted Boyden Gray and Frank Gafney and Jim Woolsey and 27 other prominent Americans, four-star admirals and generals, to write to the President some months ago, a number of months ago, saying, Madam Speaker, the fact that we have only 2 percent of the world oil reserves and we use 25 percent of the world's oil, importing almost two-thirds of what we use, is an unacceptable national security risk. Mr. President, we have got to do something about that.

Even if you think that the only problem with oil is a national security risk, we ought to be about freeing ourselves from the dependence on foreign oil. Even if there was no such thing as peaking, our behavior today needs to be vastly different than it is.

We are less than 5 percent of the world's population, about one person out of 22, and we use a fourth of the world's energy.

Madam Speaker, when we found all of that oil, and we more than others fit this characterization, rather than a responsible response to that discovery, which would ask the question how can we get the most good for the most people for the longest time, we acted like kids that found the cookie jar. We just pigged out, and here in the United States we are now using 25 percent of all the world's oil, and we represent a bit less than 5 percent of the world's population.

These top two numbers are significant. With only 2 percent of the oil reserves, we are pumping 8 percent of the world's oil. That means we are pumping our wells four times faster than the average in the world, which means that we are going to be increasingly dependent on foreign oil as we pump down our reserves.

The next chart kind of puts this in a global perspective. Because what this shows, and many people now recognize this, that for the last several years China has been scouring the world for oil. We have symbols here which show who has access to the major sources of oil in the world, and notice the symbol for China is all over this map. They have bought all of the increased capacity of the Canadian oil sands. They have major commitments from South American countries. They almost bought Unocal in our country. They have really major commitments from the Middle East.

Madam Speaker, not only this, but they recognize that we have the only blue water Navy, that is the Navy that sails the seven seas of the world and can control all of the access lanes. They see that we could, if we wish, cut off their source of oil.

So they are very aggressively building a blue water Navy.

Last year, we launched one submarine; they launched 14 submarines. Now theirs are not the quality of ours, certainly, but they are improving.

Well, what do we do? And the next chart kind of presents this challenge and this picture. Obviously, if what these two big reports say is true, that we are just about reached peaking, then we need to be about transitioning. In fact, we should have been about transitioning from fossil fuels to the renewables.

Madam Speaker, we knew of a certainty 26 years ago in 1980 we had already slid 10 years down the other side of Hubbard's Peak. Now, M.P. Hubbard was right about the United States. He predicted that the world would be peaking about now. Madam Speaker, he was right about the United States.

Would you not think that our leaders have wondered maybe, just maybe, he might be right about the world, and maybe we ought to be doing something about that? There has been a deafening silence on this subject for the last 26 years.

Any rational person, get a bright fifth grader and he will tell you what we need to be doing: We need to call upon all of our finite resources to help us through this transition period, and those finite resources are the tars and the oil shales and coal. And then there is nuclear as kind of a separate class, light water reactors, breeder reactors.

And note the quote from the Corps of Engineers study that the high-quality cheap, that is fissionable, uranium, will be exhausted in about 20 years, so we will need to move to breeder reactors which, as the name implies, makes more fuel than they use and so they are kind of self-sustaining. But, with that, you buy some problems of transportation and enriching and products that could be used by bad guys for making nuclear weapons.

I have a number of colleagues who have been stoutly opposed to nuclear, but when they are now rationally considering the alternative of shivering in the dark, nuclear is looking better and better.

Nuclear fusion, if we ever got there, Madam Speaker, we are home free. There is nothing else on this chart that gets us home free. Fusion does. I support happily the roughly $250 million a year that we put into this technology. But I think that counting on solving our energy future challenges with fusion is a bit like me or you, Madam Speaker, planning to solve our personal economic problems by winning the lottery, and I think the odds are probably somewhere near the same.

Once we have gone through these finite resources and have developed all the nuclear that we wish to develop, then we will ultimately, and the geology will assure it, because coal, gas and oil are not forever, we will transition to the renewables, and these are what they are, solar and wind and geothermal. That is true geothermal, where you are tapping into the molten core of the earth. There is not a chimney in all of Iceland because all of their energy is geothermal there, ocean energy, the tides and thermal gradients and so forth.

Agriculture resources, a lot of talk today about ethanol and methanol and soy diesel and biodiesel and biomass. Waste energy, a great idea. Instead of putting it in a landfill, burn it. There is lots of energy there. A very productive plant, state-of-the-art plant up in Montgomery County who would be happy, Madam Speaker, to have you come visit them there.

And then hydrogen from renewables. That is significant. Today, we are getting all of our hydrogen from natural gas. That is not renewable. That, by and by, will be gone, and then we will have to get hydrogen from renewables or from nuclear.

Just a word of caution. Hydrogen is not an energy source. We will always use more energy to produce hydrogen than we get out of it, or else we will have to suspend the second law of thermodynamics. And, Mr. Speaker, if we can do that, we can suspend the law of gravity and we are really home free, are we not?

Why even talk about hydrogen then? Well, because of the two characteristics of hydrogen. One is when you finally burn it, you get water that is not polluted. And if you have used a nonpolluting energy source to produce it like nuclear, for instance, or wind or solar, then you are totally nonpolluting.
The second advantage of hydrogen is that it is quite ideal for fuel cells if in fact we are ever able to make fuel cells that are economic. With the fuel cell, you get about twice the efficiency or at least twice the efficiency that you get out of reciprocating engine.

The next chart looks at coal. And some will tell you do not worry about energy because we have got an incredible supply of coal, they will tell you, in 500 years. That is not true. At current use rates, we do have 250 years of energy, of coal.

Albert Einstein said that compound interest was the most powerful force in the universe. If you increase its use only 2 percent, that 250 years shrinks to about 85 years. And, now, if you have to use some of the energy from the coal to convert to a gas or a liquid, and we will have to do that because we have limited uses for coal itself, then you reduce it to 50 years. That is meaningful. But it is a finite resource. It is not forever. It is dirty. You are either going to pay a big environmental penalty or an economic penalty for cleaning it up.

The next chart is an interesting one, and that looks at the opportunities and limitations from the agricultural world. On the top here, we have two little sequences which indicate the energy transformation from petroleum, and notice that you start out with maybe 5 equivalents of energy and end up with 4, so it is 5:4. And with corn to ethanol, you ought to do better, because you are getting some energy from the sun here. There are lots of challenges. It is or it can be energy positive. It certainly is in South America, where Brazil is converting sugar cane, which is a bit better than corn, to ethanol, and they are now freeing themselves from dependence on imported oil and soon all of their cars will be ethanol cars.

The bottom pie chart here is something I wanted to spend just a moment on because it is so startling. This shows you the energy input into producing a bushel of corn. Notice the purple area there, almost half of it, it says nitrogen, that is nitrogen fertilizer made from natural gas. When natural gas is gone, that source of nitrogen fertilizer is gone.

Madam Speaker, before we learned how to do that, the only source of nitrogen fertilizer was barnyard manure and guano. The guano is gone. It took tens of thousands of years to produce it, we believe, and now it is harvested, and it is gone. That is the droppings from birds and bats on tropical islands and caves and so forth.

All those other segments of the pie here are other fossil fuel energy inputs into growing corn. I would just like to emphasize in very large measure the food we eat is just transformed gas and oil, and without gas and oil it would be very difficult to produce the amounts of food that we are producing today.

The next chart is a really interesting one. The little analogy that I use here is that we are very much like a young couple whose grandparents have died and left them a big inheritance, and they have established a lifestyle where 85 percent of all the money they spend comes from their grandparents' inheritance and only 15 percent from their income. They look at the inheritance and how old they are and project a reasonable life span, and, gee, the grandparents' inheritance is going to give out long before we retire. So, obviously, Madam Speaker, they have got to do one or both of two things: Either they have got to make more money, or they have got to spend less money.

I use that 85/15, and others will use 86/14. The 85/15 shows what our energy dependence is now. About 85 percent of all the energy we use comes from fossil fuels. That is like the inheritance from our grandparents: It will not last forever. And only about 15 percent of it comes from other sources. A bit more than half of it that comes from nuclear power, 8 percent of our total energy, 20 percent of our electricity.

As you drive home tonight, note that every fifth business and every fifth house would be dark if it weren't for nuclear power.

Then we look at that 7 percent which is renewable energy, and the biggest chunk of that is conventional hydro that will not grow in our country. We may get some micro-hydro, but the big rivers have all been dammed and probably more than we should have dammed.

The next biggest chunk of that comes from wood, and that is the paper industry and the timber industry wisely burning a waste product that would otherwise end up in the landfill.

And then waste energy, that 8 percent. By the way, this 1 percent is 0.07 percent, because that is 1 percent of 7 percent from solar. That is a tiny, tiny amount of energy. But this was in 2000. That has been growing at 30 percent a year, so now it is about four times bigger. It is now 0.28 percent. Big deal, Madam Speaker. 0.28 percent? And that is about the same thing for wind, maybe a bit more from agriculture.

Those are the energy sources we are going to have to increasingly rely on in the future. So we have got a big challenge ahead of us.

The next chart depicts what we ought to be doing. The first thing we need to do is to buy some time. You see, it takes three things to develop these renewables: It takes money, and it takes energy, and it takes time. Mr. Speaker, we will not worry about the money, although we should. Because when it comes to money we just borrow it from our kids and our grandkids by running up a big debt. So let us not worry about the money here.

But we cannot borrow time from our kids, and we cannot borrow energy from our kids. The only way to buy some time and free up some energy is with a pretty massive conservation program which frees up some energy.

Today, Madam Speaker, there is no surplus energy to invest in alternatives. All of it is needed by the economies of the world, or oil would not be roughly $75 a barrel.

Madam Speaker, what this chart denotes is a program that I think needs three qualities if we are going to make this transition in any acceptable way. First, we must have everybody involved, a total commitment like World War II. I lived through that. Everybody had a victory garden, everybody saved their household grease and took it to a central repository. It was the last war, the last time that everybody in our country was involved. We need a program, Madam Speaker, that has the total commitment of our population in World War II. It needs to have the technology focus of putting a man on the moon, because we are going to have to have a lot of technology breakthroughs and applications here if we are going to make it.

Thirdly, it needs to have the intensity of the Manhattan Project. Minus that, I think we are going to have a very rough ride. We should have begun 26 years ago.

Once we have freed up some time and freed up some energy, we need to use it wisely. And what has the biggest potential? What will have the biggest payoff? I think there are enormous benefits to this. I can see the American people going to bed every night thinking to themselves, gee, I really contributed today. I used less energy, I lived very comfortably, and I am really working on that new project which is going to help my kids and my grandkids to live as well as I live or maybe even better.

I think that we can be a role model for the world. I think that we can develop a lot of technology that we can export, but, Mr. Speaker, we will never get there unless we start.

I am wondering again, unless we close in the way we started, these two big studies paid for by our government noting the problems that we face in the future, why have not those parts of the government that paid for these reports claimed ownership? Why are they not using the resources available to them to make this information available to the American people? Why are they not coming to us with a program that says we have a big challenge, we have big opportunities, we really need to get going?
Madam Speaker, I think that we have a great bright future if we challenge the American people and marshal the resource. I think we have a very bumpy ride if we do not.

I look forward, Madam Speaker, to our leadership showing the way. I think Americans will follow. I think that we can be a role model to the world, and I think that we can get through this with less problems than many are depicting, but we won't get there unless we start.

Posted by Hugo Albert Orwell at 02:40 PM | Permalink | TrackBacks (0)

Source: The Progressive

By Greg Palast, The Progressive
July 2006 Issue

You’d think George Bush would get down on his knees and kiss Hugo Chávez’s behind. Not only has Chávez delivered cheap oil to the Bronx and other poor communities in the United States. And not only did he offer to bring aid to the victims of Katrina. In my interview with the president of Venezuela on March 28, he made Bush the following astonishing offer: Chávez would drop the price of oil to $50 a barrel, “not too high, a fair price,” he said—a third less than the $75 a barrel for oil recently posted on the spot market. That would bring down the price at the pump by about a buck, from $3 to $2 a gallon.

But our President has basically told Chávez to take his cheaper oil and stick it up his pipeline. Before I explain why Bush has done so, let me explain why Chávez has the power to pull it off—and the method in the seeming madness of his “take-my-oil-please!” deal.

Venezuela, Chávez told me, has more oil than Saudi Arabia. A nutty boast? Not by a long shot. In fact, his surprising claim comes from a most surprising source: the U.S. Department of Energy. In an internal report, the DOE estimates that Venezuela has five times the Saudis’ reserves.

However, most of Venezuela’s mega-horde of crude is in the form of “extra-heavy” oil—liquid asphalt—which is ghastly expensive to pull up and refine. Oil has to sell above $30 a barrel to make the investment in extra-heavy oil worthwhile. A big dip in oil’s price—and, after all, oil cost only $18 a barrel six years ago—would bankrupt heavy-oil investors. Hence Chávez’s offer: Drop the price to $50—and keep it there. That would guarantee Venezuela’s investment in heavy oil.

But the ascendance of Venezuela within OPEC necessarily means the decline of the power of the House of Saud. And the Bush family wouldn’t like that one bit. It comes down to “petro-dollars.” When George W. ferried then-Crown Prince (now King) Abdullah of Saudi Arabia around the Crawford ranch in a golf cart it wasn’t because America needs Arabian oil. The Saudis will always sell us their petroleum. What Bush needs is Saudi petro-dollars. Saudi Arabia has, over the past three decades, kindly recycled the cash sucked from the wallets of American SUV owners and sent much of the loot right back to New York to buy U.S. Treasury bills and other U.S. assets.

The Gulf potentates understand that in return for lending the U.S. Treasury the cash to fund George Bush’s $2 trillion rise in the nation’s debt, they receive protection in return. They lend us petro-dollars, we lend them the 82nd Airborne.

Chávez would put an end to all that. He’ll sell us oil relatively cheaply—but intends to keep the petro-dollars in Latin America. Recently, Chávez withdrew $20 billion from the U.S. Federal Reserve and, at the same time, lent or committed a like sum to Argentina, Ecuador, and other Latin American nations.

Chávez, notes The Wall Street Journal, has become a “tropical IMF.” And indeed, as the Venezuelan president told me, he wants to abolish the Washington-based International Monetary Fund, with its brutal free-market diktats, and replace it with an “International Humanitarian Fund,” an IHF, or more accurately, an International Hugo Fund. In addition, Chávez wants OPEC to officially recognize Venezuela as the cartel’s reserve leader, which neither the Saudis nor Bush will take kindly to.

Politically, Venezuela is torn in two. Chávez’s “Bolivarian Revolution,” a close replica of Franklin Roosevelt’s New Deal—a progressive income tax, public works, social security, cheap electricity—makes him wildly popular with the poor. And most Venezuelans are poor. His critics, a four-centuries’ old white elite, unused to sharing oil wealth, portray him as a Castro-hugging anti-Christ.

Chávez’s government, which used to brush off these critics, has turned aggressive on them. I challenged Chávez several times over charges brought against Súmate, his main opposition group. The two founders of the nongovernmental organization, which led the recall campaign against Chávez, face eight years in prison for taking money from the Bush Administration and the International Republican [Party] Institute. No nation permits foreign funding of political campaigns, but the charges (no one is in jail) seem like a heavy hammer to use on the minor infractions of these pathetic gadflies.

Bush’s reaction to Chávez has been a mix of hostility and provocation. Washington supported the coup attempt against Chávez in 2002, and Condoleezza Rice and Donald Rumsfeld have repeatedly denounced him. The revised National Security Strategy of the United States of America, released in March, says, “In Venezuela, a demagogue awash in oil money is undermining democracy and seeking to destabilize the region.”

So when the Reverend Pat Robertson, a Bush ally, told his faithful in August 2005 that Chávez has to go, it was not unreasonable to assume that he was articulating an Administration wish. “If he thinks we’re trying to assassinate him,” Robertson said, “I think that we really ought to go ahead and do it. It’s a whole lot cheaper than starting a war . . . and I don’t think any oil shipments will stop.”

There are only two ways to defeat the rise of Chávez as the New Abdullah of the Americas. First, the unattractive option: Cut the price of oil below $30 a barrel. That would make Chávez’s crude worthless. Or, option two: Kill him.

Palast: Your opponents are saying that you are beginning a slow-motion dictatorship. Is that what we are seeing?

Hugo Chávez: They have been saying that for a long time. When they’re short of ideas, any excuse will do as a vehicle for lies. That is totally false. I would like to invite the citizens of Great Britain and the citizens of the U.S. and the citizens of the world to come here and walk freely through the streets of Venezuela, to talk to anyone they want, to watch television, to read the papers. We are building a true democracy, with human rights for everyone, social rights, education, health care, pensions, social security, and jobs.

Palast: Some of your opponents are being charged with the crime of taking money from George Bush. Will you send them to jail?

Chávez: It’s not up to me to decide that. We have the institutions that do that. These people have admitted they have received money from the government of the United States. It’s up to the prosecutors to decide what to do, but the truth is that we can’t allow the U.S. to finance the destabilization of our country. What would happen if we financed somebody in the U.S. to destabilize the government of George Bush? They would go to prison, certainly.

Palast: How do you respond to Bush’s charge that you are destabilizing the region and interfering in the elections of other Latin American countries?

Chávez: Mr. Bush is an illegitimate President. In Florida, his brother Jeb deleted many black voters from the electoral registers. So this President is the result of a fraud. Not only that, he is also currently applying a dictatorship in the U.S. People can be put in jail without being charged. They tap phones without court orders. They check what books people take out of public libraries. They arrested Cindy Sheehan because of a T-shirt she was wearing demanding the return of the troops from Iraq. They abuse blacks and Latinos. And if we are going to talk about meddling in other countries, then the U.S. is the champion of meddling in other people’s affairs. They invaded Guatemala, they overthrew Salvador Allende, invaded Panama and the Dominican Republic. They were involved in the coup d’état in Argentina thirty years ago.

Palast: Is the U.S. interfering in your elections here?

Chávez: They have interfered for 200 years. They have tried to prevent us from winning the elections, they supported the coup d’état, they gave millions of dollars to the coup plotters, they supported the media, newspapers, outlaw movements, military intervention, and espionage. But here the empire is finished, and I believe that before the end of this century, it will be finished in the rest of the world. We will see the burial of the empire of the eagle.

Palast: You don’t interfere in the elections of other nations in Latin America?

Chávez: Absolutely not. I concern myself with Venezuela. However, what’s going on now is that some rightwing movements are transforming me into a pawn in the domestic politics of their countries, by making statements that are groundless. About candidates like Morales [of Bolivia], for example. They said I financed the candidacy of President Lula [of Brazil], which is totally false. They said I financed the candidacy of Kirchner [of Argentina], which is totally false. In Mexico, recently, the rightwing party has used my image for its own profit. What’s happened is that in Latin America there is a turn to the left. Latin Americans have gotten tired of the Washington consensus—a neoliberalism that has aggravated misery and poverty.

Palast: You have spent millions of dollars of your nation’s oil wealth throughout Latin America. Are you really helping these other nations or are you simply buying political support for your regime?

Chávez: We are brothers and sisters. That’s one of the reasons for the wrath of the empire. You know that Venezuela has the biggest oil reserves in the world. And the biggest gas reserves in this hemisphere, the eighth in the world. Up until seven years ago, Venezuela was a U.S. oil colony. All of our oil was going up to the north, and the gas was being used by the U.S. and not by us. Now we are diversifying. Our oil is helping the poor. We are selling to the Dominican Republic, Haiti, Cuba, some Central American countries, Uruguay, Argentina.

Palast: And the Bronx?

Chávez: In the Bronx it is a donation. In all the cases I just mentioned before, it is trade. However, it’s not free trade, just fair commerce. We also have an international humanitarian fund as a result of oil revenues.

Palast: Why did George Bush turn down your help for New Orleans after the hurricane?

Chávez: You should ask him, but from the very beginning of the terrible disaster of Katrina, our people in the U.S., like the president of CITGO, went to New Orleans to rescue people. We were in close contact by phone with Jesse Jackson. We hired buses. We got food and water. We tried to protect them; they are our brothers and sisters. Doesn’t matter if they are African, Asian, Cuban, whatever.

Palast: Are you replacing the World Bank and the International Monetary Fund as “Daddy Big Bucks”?

Chávez: I do wish that the IMF and the World Bank would disappear soon.

Palast: And it would be the Bank of Hugo?

Chávez: No. The International Humanitarian Bank. We are just creating an alternative way to conduct financial exchange. It is based on cooperation. For example, we send oil to Uruguay for their refinery and they are paying us with cows.

Palast: Milk for oil.

Chávez: That’s right. Milk for oil. The Argentineans also pay us with cows. And they give us medical equipment to combat cancer. It’s a transfer of technology. We also exchange oil for software technology. Uruguay is one of the biggest producers of software. We are breaking with the neoliberal model. We do not believe in free trade. We believe in fair trade and exchange, not competition but cooperation. I’m not giving away oil for free. Just using oil, first to benefit our people, to relieve poverty. For a hundred years we have been one of the largest oil-producing countries in the world but with a 60 percent poverty rate and now we are canceling the historical debt.

Palast: Speaking of the free market, you’ve demanded back taxes from U.S. oil companies. You have eliminated contracts for North American, British, and European oil companies. Are you trying to slice out the British and American oil companies from Venezuela?

Chávez: No, we don’t want them to go, and I don’t think they want to leave the country, either. We need each other. It’s simply that we have recovered our oil sovereignty. They didn’t pay taxes. They didn’t pay royalties. They didn’t give an account of their actions to the government. They had more land than had previously been established in the contracts. They didn’t comply with the agreed technology exchange. They polluted the environment and didn’t pay anything towards the cleanup. They now have to comply with the law.

Palast: You’ve said that you imagine the price of oil rising to $100 dollars per barrel. Are you going to use your new oil wealth to squeeze the planet?

Chávez: No, no. We have no intention of squeezing anyone. Now, we have been squeezed and very hard. Five hundred years of squeezing us and stifling us, the people of the South. I do believe that demand is increasing and supply is dropping and the large reservoirs are running out. But it’s not our fault. In the future, there must be an agreement between the large consumers and the large producers.

Palast: What happens when the oil money runs out, what happens when the price of oil falls as it always does? Will the Bolivarian revolution of Hugo Chávez simply collapse because there’s no money to pay for the big free ride?

Chávez: I don’t think it will collapse, in the unlikely case of oil running out today. The revolution will survive. It does not rely solely on oil for its survival. There is a national will, there is a national idea, a national project. However, we are today implementing a strategic program called the Oil Sowing Plan: using oil wealth so Venezuela can become an agricultural country, a tourist destination, an industrialized country with a diversified economy. We are investing billions of dollars in the infrastructure: power generators using thermal energy, a large railway, roads, highways, new towns, new universities, new schools, recuperating land, building tractors, and giving loans to farmers. One day we won’t have any more oil, but that will be in the twenty-second century. Venezuela has oil for another 200 years.

Palast: But the revolution can come to an end if there’s another coup and it succeeds. Do you believe Bush is still trying to overthrow your government?

Chávez: He would like to, but what you want is one thing, and what you cannot really obtain is another.

Investigative reporter Greg Palast, who interviewed President Hugo Chávez for the British Broadcasting Corporation (BBC), is the author of “Armed Madhouse: Dispatches from the Front Lines of the Class War,” from which this is adapted.

Posted by Hugo Albert Orwell at 04:54 PM | Permalink | TrackBacks (0)

Fantastic explantion of the history of oil, oil's influence in war, Peak Oil and US Dollar currency hegemony. All done with humor, amusing analogies and in lay person's terms.

http://video.google.com/videoplay?docid=7374585792978336967

Posted by Hugo Albert Orwell at 11:18 AM | Permalink | TrackBacks (0)

Source: The Observer

NO MORE CHEAP OIL SAYS CHAVEZ
By Meirion Jones
Producer, BBC Newsnight
Monday April 3, 2006

If you thought high oil prices were just a blip think again. In an exclusive interview with Greg Palast for BBC Newsnight the Venezuelan President Hugo Chavez has ruled out any return to the era of cheap oil.

The colourful Venezuelan leader hosts the OPEC meeting on June 1 in Caracas and he will ask OPEC to set $50 a barrel - the average price last year - as the long term level. During the 1990s the price of oil had hovered around the $20 mark falling as low as $10 a barrel in early 1999.

Chavez told Newsnight "we're trying to find an equilibrium. The price of oil could remain at the low level of $50. That's a fair price it's not a high price". Hugo Chavez will have added clout at this OPEC meeting.

US Department of Energy analyses seen by Newsnight show that at $50 a barrel Venezuela - not Saudi Arabia - will have the biggest oil reserves in OPEC. Venezuela has vast deposits of extra heavy oil in the Orinoco. Traditionally these have not been counted because at $20 a barrel they were too expensive to exploit - but at $50 a barrel melting them into liquid petroleum becomes extremely profitable.

The US DoE report shows that at today's prices Venezuela's oil reserves are bigger than those of the entire Middle East including Saudi Arabia, the Gulf states, Iran and Iraq. The US DoE also identifies Canada as another future oil superpower. Venezuela's deposits alone could extend the oil age for another 100 years.

The US DoE estimates that Chavez controls 1.3 trillion barrels of oil - more than the entire declared oil reserves of the rest of the planet. Hugo Chavez told Newsnight's Greg Palast that "Venezuela has the largest oil reserves in the world. In the future Venezuela won't have any more oil - but that's in the 22nd century. Venezuela has oil for 200 years." Chavez will ask the OPEC meeting in June to formally accept that Venezuela's reserves are now bigger than Saudi Arabia's.

Chavez's increased muscle will not go down well in Washington. In 2002 the Bush administration welcomed an attempted coup against Chavez. He told Newsnight that the Americans had organised it in an attempt to get hold of Venezuela's oil.

Ironically by invading Iraq George Bush has boosted oil prices and effectively transferred billions of dollars from American consumers to Chavez. Up to $200 million a day - half of it from the US - is flooding into Caracas. Chavez is spending this on building infrastructure and increasing the minimum wage and improving health and education in the poor ranchos which surround the cities. As a result even his opponents accept that Chavez is extremely popular and will easily win the next Presidential election in December.

Chavez is also spending billions in the rest of Latin America - exchanging contracts for oil tankers and infrastructure projects and buying up loans in Argentina and Brazil. He has made cheap oil deals with Ecuador and the Caribbean.

He has also spent some of the dollars which have come in from the US supporting Fidel Castro in Cuba. In return Cuba has supplied the thousands of doctors and teachers who are transforming conditions in the barrios of Caracas. Washington accuses Chavez of buying influence in Latin America.

The Newsnight team had to endure the long speeches and marathon six hour TV shows which Hugo Chavez delights in. Chavez posed for Newsnight posing with the sword of Simon Bolivar the 18th century liberator who drove out Spanish imperialists from South America. The symbolism was clear but behind the showman is a clever political brain.

Chavez has not invaded any foreign countries. He does not have secret prisons at home or abroad. Chavez has repeatedly won democratic elections and the opposition operates freely although some members have been charged with accepting illegal foreign donations. Nonetheless George Bush's administration repeatedly targets Chavez on human rights and finances his opponents.

Earlier this year US Defense Secretary Donald Rumsfeld compared Chavez to Hitler - because he was elected democratically - and last year the influential American evangelist Pat Robertson called for his assassination. Robertson later apologized and said that he did not "necessarily" have to be killed so long as he was kidnapped by American special forces.

Chavez told Newsnight that he was still concerned that George Bush had not learnt the lessons of Iraq and would order an invasion to try to secure Venezuela's oil. "I pray this will not happen because US soldiers will bite the dust and so will we, Venezuelans". He warned that any such attempt would lead to a prolonged guerilla war and an end to oil production. "The US people should know there will be no oil for anyone".

Chavez does not accept Tony Blair's criticism of him for lining up with Fidel Castro. He told Newsnight "if someone is sleeping together it is Bush and Blair. They share the same bed."

Posted by Hugo Albert Orwell at 09:58 AM | Permalink | TrackBacks (0)

Source: Falls Church News-Press Online

By Tom Whipple
Thursday, 14 September 2006

The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great “discovery” naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for The story broke the morning after Labor Day, when the Wall Street Journal ran a front-page piece reporting that Chevron along with two partners had announced the results of a major oil production test in the Gulf of Mexico. The partners Chevron, Statoil, and Devon Energy ran the test on a well known as Jack No. 2 that was drilled last year in the Lower Tertiary zone of the Gulf of Mexico. This zone is about 80 miles wide, 300 miles long and is located about 175 miles off shore. The well was unusual in that it went to a depth of 28,000 feet and the drilling began under 7,000 feet of water.

Released details of the test noted that a number of technical breakthroughs had been achieved. By using the latest technology, Chevron was able to discern and drill into promising geological structures that had previously been hidden below a layer of sound-absorbing silt. The test, which achieved flow rates of 6,000 barrels per day (b/d), established that oil could be extracted at acceptable rates from very deep deposits. It also set several records for extracting oil under conditions of extreme pressures and temperatures.

Although no formal estimate as to the size of this particular find was announced, background briefers spoke of the possibility that the zone could contain from 3 to 15 billion barrels of oil in scattered deposits. If this speculation were to prove true, it would put the Lower Tertiary in a class with Alaska’s Prudhoe Bay and increase domestic US oil reserves by 50 percent.

The news of this great “discovery” naturally was replayed by nearly every newspaper and TV network in the country. Katie Couric ran a segment about the discovery on her first evening news show. Most reporting emphasized the possibility that the US might have found another 15 billion barrels of oil in its own backyard, but tempered the jubilation with the news that the find would have no immediate impact on gasoline prices.

A few, mostly financial journalists, took the announcement as an opportunity to disparage the idea of imminent peak oil. These writers are aware that should world oil production go into decline within the next decade the world’s economy would be in a lot of trouble, not to mention the credibility of those who make a living by forecasting decades of growth ahead. Therefore, they eagerly accepted the dubious premise that this one test proves that plenty of oil can be found by drilling deeper so long as oil prices remain high enough to support the costs of ultra-deep oil production; advanced technology is used to the fullest; and environmental restrictions are lifted. Several pronounced peak oil a dead issue.

As the week wore on however, knowledgeable geologists and petroleum engineers began to question all the euphoria. First they noted that the Jack No. 2 test was not conducted on a single oil field that might contain 15 billion barrels oil. Rather, it was one test of a well in a zone that extends for hundreds of miles under the Gulf of Mexico. Whatever producible oil the zone contains will likely be found in numerous smaller deposits.

A number of wells have already been sunk in the Lower Tertiary. Some were dry holes and a few struck oil bearing rock, which may have the potential to produce oil profitably. So far, only a handful of these exploratory wells have struck deposits of light oil, which may be possible to produce. Others have struck thicker oils that may be impossible to extract from extreme depths at acceptable rates.

What seems to be turning up in the deeper waters of the Gulf are a series of smaller oil fields — some of which may someday be profitable to produce and some of which probably won’t. Extrapolating this situation to a major new discovery that will delay the onset of peak oil is clearly a reach.

To extract oil from 20,000 feet below the surface, where the pressures run to 20,000 pounds per square inch (psi) and the temperature of the oil is in the order of 200 degrees centigrade, is going to be a major technical challenge. Wells drilled to these depths will cost in the range of $100 million each. To drill and set in place the production equipment for one of these fields may cost on the order of $1.5 billion, or more, as the cost of oil production equipment is inflating rapidly.

Add to this the problem of what to do with very hot oil and the associated natural gas as it comes flowing to the top of a well 7,000 feet under the Gulf and 175 miles from shore. The decision to attempt production from these ultra-deep fields will not be taken lightly by the oil companies involved.

Although there are no geopolitical problems or nationalistic governments involved in producing oil from the Gulf of Mexico, the fields are right in its center — out where the Category 4 and 5 hurricanes really get wound up. On top of this there are questions of how much oil can be extracted from an ultra-deep field with extreme pressures. Although the recent test produced 6,000 barrels a day, for a month, a knowledgeable old geologist opined that he would like to see a test run for a year or more before committing billions to a whole new regime of oil production.

Assuming that producing oil from the Lower Tertiary turns out to be economically and technically feasible, will new production from the region have anything to do with delaying peak oil? The answer is an emphatic NO.

Knowledgeable observers who have commented on the issue agree that even if all goes well, it is unlikely that more than 300-500,000 b/d of production could come into production from all the possible fields in the Lower Tertiary over the next five to seven years. In the meantime, the world will have burned another 150 to 200 billion barrels of oil and US production from existing fields will decline from the current 5 million b/d to somewhere around 4 million b/d.

This suggests that it will take some spectacular and unlikely gains from new production to offset the natural decline currently underway in the US. Of still greater concern is production from Mexico’s giant 2 million b/d Cantarell oilfield, most of which is exported to the US. Creditable reports suggest that Cantarell is entering very rapid depletion and may be producing at a fraction of its current level five years from now. It would be virtually impossible for this level of new production from the Lower Tertiary to come online in the next five years.

So long as the world continues to consume some 31 billion barrels of oil a year, there is still nothing in sight that can forestall imminent peak oil.

Posted by Hugo Albert Orwell at 03:24 PM | Permalink | TrackBacks (0)

Source: Gulf Times, Doha, Qatar

Published: Thursday, 14 September, 2006, 08:50 AM Doha Time

VIENNA: Saudi Arabia, the world’s biggest oil producer, said improving technology and new fields may help the world unlock 2tn barrels of oil in the next 25 years, or about double the existing proven reserves.

Abdullah Jum’ah, the chief executive officer of state-run Saudi Aramco, challenged engineers to raise oil-field recovery rates by 20% in 25 years, adding 1tn barrels to world reserves. New finds could add another 1tn. He expects Saudi Arabia alone to gain 200bn barrels of reserves in 30 years.

Saudi Arabia has “not had to draw down reserves in the last 10 years because we have been adding at least as much as we produce,’’ Jum’ah told reporters in Vienna, where he was attending a conference. “Saudi Arabia is under-explored. We will probably add 200bn barrels of oil 25 to 30 years from now.’’

Proven Saudi reserves now total about 260bn barrels, he said. Proven global oil reserves ended 2005 at 1.2tn barrels, with 264bn in Saudi Arabia, according to BP Plc’s Statistical Review of World Energy. To those reserves can be added another 1.5tn barrels from sources like oil sands and oil shale, Jum’ah said in a speech yesterday in Vienna, at a conference hosted by the Organisation of Petroleum Exporting Countries.

Taken together, with the additional 2tn barrels possible from new oil finds and improved recovery rates, Jum’ah’s estimates show a potential of 4.7tn barrels of oil, “or more than 140 years of supply at today’s current rate of production.’’

He gave no estimate of long it would take before that oil could be recovered.

The Saudi Aramco executive and the head of the US government’s energy forecasting agency both expressed confidence technology will increase oil reserves and production rates in coming years.

“Technological transfer occurs more quickly in this industry than in any other,’’ and high oil prices will speed up such advances, Guy Caruso, the head of the US Energy Department’s Energy Information Administration, said in Vienna yesterday.

Saudi Aramco has boosted its computing power 300-fold since 1999 and now has a better understanding of its reserves, Jum’ah said. He said reserves will probably grow in the US Gulf of Mexico, though he declined to provide any geographical detail of where world reserves might expand.

The size of existing reserves and resources discredits the “peak oil’’ theory that world oil production is already close to peaking, the Saudi executive said, repeating a view he has expressed previously.

Rex Tillerson, the chief executive officer of ExxonMobil Corp, the world’s largest publicly owned oil company, said at the same conference that technological progress will continue. “There has never been an era of easy oil,’’ Tillerson said. “Our industry has constantly operated at the technological frontier.’’

Caruso said some years ago, when prices were lower, companies operating in the North Sea “said they were reducing upstream development costs 10% a year.’’

“Now we are in a higher price environment, we are seeing developments in non-conventional oil that we could not conceive of at $20 a barrel,’’ Caruso said.

Non-conventional oil includes new methods of producing oil, or oil-like fuel, from sources such as rocks, coal, gas and plants.

Even so, Caruso’s estimates show non-conventional oil in coming years will contribute relatively little to the world’s oil supply. For example, oil sands may produce 3.6mn bpd by 2030, up from 1mn barrels a day last year, Caruso said.

Oil shale will rise to 100,000 bpd from zero now. Gas-to-liquids and coal-to-liquids supply will each rise to 2.1mn bpd in 2030 from about 200,000 bpd combined last year, he said. Biofuels supply will rise to 2.1mn bpd from 700,000 bpd. – Bloomberg

Posted by Hugo Albert Orwell at 03:14 PM | Permalink | TrackBacks (0)

Source: Bloomberg.com

Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

By Deepak Gopinath

Aug. 31 (Bloomberg) -- On a sweltering Tuesday in mid-July, in the fields outside Pisa, Italy, Willem Kadijk scribbles notes as a ragtag troupe of doomsayers predict the end of the Oil Age.

With his shaved head, jeans and sandals, Kadijk, 48, blends into a crowd gathered under a white tent to hear of the coming calamity. The death of cheap, abundant crude, the forecasters warn, might unleash war and plunge the world into a second Great Depression.

That's not the prophecy of some apocalyptic cult. Kadijk, a hedge fund adviser, had flown from Amsterdam to attend a conference on a geologic theory known as peak oil.

Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow.

"Peak oil is a reality," says Kadijk, a senior equity salesman at Kepler Equities, an Amsterdam-based brokerage. He plans to start a fund to capitalize on what he sees as a looming crisis for the world's fossil fuel-based economy and the ultimate bull market in oil.

As energy prices soar and violence convulses the Middle East, the peak-oil movement -- an unlikely alliance of geologists, physicists, oil industry consultants and environmental activists -- is winning converts. Peak-oil ideas are bubbling up from scientific journals and offbeat Web sites, much the way warnings of global warming did a decade ago. For the first time, the peaksters have begun to grab the attention of Washington and Wall Street.

Congressional Caucus

U.S. Energy Secretary Samuel Bodman, former boss of Boston- based Cabot Corp., an oil and chemicals company, has asked the National Petroleum Council, which advises him, to investigate whether oil supplies can keep pace with demand. The U.S. Government Accountability Office, the nonpartisan congressional watchdog, is due to release a study on peak oil this November. Rep. Roscoe Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to sound the alarm.

"The world has never faced a problem like this," Bartlett says.

Everyone agrees we'll run out of crude eventually. Oil, after all, is a finite resource: The Earth holds only so much of it. The controversial issue is when a global peak will occur -- and what will happen then.

Colin Campbell, a British geologist who popularized the peak- oil theory in his book "The Coming Oil Crisis" (Multi-Science Publishing Co. and Petroconsultants SA, 1997, 210 pages) says world production of conventional oil, the kind that comes from gushing wells, is reaching its apex.

End of Oil Age

Society isn't prepared for the consequences, Campbell, 75, says. It's too late to develop alternative sources of power, such as solar cells, nuclear reactors and windmills, to fill the oil gap before energy prices soar, says Campbell, who has a doctorate in geology from the University of Oxford and more than 40 years of experience in the oil industry.

"We have come to the end of the first half of the Oil Age," Campbell says.

Nonsense, says Russ Roberts, a spokesman for Exxon Mobil Corp., the world's largest oil company. Exxon Mobil, which has reaped record profits as the price of oil has surged, has taken out ads dismissing peak oil in U.S. newspapers such as the New York Times.

The Irving, Texas-based oil giant says the peaksters are being alarmist. In all, the world probably has 4 trillion barrels of oil left, four times the amount we have used so far, the ad says.

Time to Think

"The world is nowhere near running out of oil," Roberts says. Exxon Mobil geologists believe global oil production will keep rising through 2030, he says.

Cambridge Energy Research Associates, whose chairman, Daniel Yergin, is a leading peak-oil critic, says production will reach an "undulating plateau" sometime in the future.

"Our outlook goes to 2020, and we see no evidence of a peak," CERA geologist Peter Jackson says. "Eventually, we will start to see a decline. There is still time to think about alternatives."

Predictions of an imminent oil famine are as old as the industry itself. When production at the first U.S. wells, located in western Pennsylvania, began to decline in the late 19th century, some people predicted the country would soon run out of oil. Then crude was discovered in east Texas, whose oil fields yielded so much black gold that the Texas Railroad Commission capped production to support prices.

Peak Moment

In the past, Campbell or his disciples have forecast the oil peak down to the year or even the day only to push back the fateful moment. In 1997, Campbell said it would occur in 2001. Now, he says total production, which includes oil from deep-water wells and fuel derived from natural gases, will reach its height sometime after 2010.

Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.

Campbell says the exact day or year isn't important. What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

U.S. Addiction

At a time when U.S. President George W. Bush has urged the country to break its addiction to foreign oil, the fact is, the U.S. is becoming ever more dependent on overseas crude. U.S. oil production peaked 36 years ago, in 1970, at 11.3 million barrels a day. Since then, output has fallen 39 percent, to 6.8 million barrels a day, or 8 percent of the world total, in 2005, according to BP.

Investors have started to listen to the peaksters. Billionaire Boone Pickens says he's a peak believer. So does Peter Thiel, who co-founded PayPal Inc. and now runs Clarium Capital Management LLC, a $2.1 billion hedge fund firm. Pickens, Thiel and other investors are positioning themselves to profit from what they say will be the biggest oil squeeze of all time.

Even some oil companies and industry veterans sound nervous. Chevron Corp. has run a series of full-page ads in U.S. newspapers that highlight surging oil consumption and declare, "The era of easy oil is over."

Chicken Littles

Thierry Desmarest, chief executive officer of Paris-based Total SA, told the World Gas Conference in Amsterdam in June that global oil production would peak in 2020. Matthew Simmons, whose Houston-based investment bank, Simmons & Co., trades oil and gas stocks, says Saudi Arabia's production may decline soon.

Alex Cranberg, chairman of Denver-based independent oil company Aspect Energy LLC, calls the peaksters Chicken Littles -- misguided souls who think the sky is falling.

In fact, Cranberg hired two people to dress in chicken costumes and hand out fliers dismissing peak oil at the conference Kadijk attended in July.

Like many oil-industry vets, Cranberg, 51, says market forces and technological advances will ultimately cure our energy ills. As oil prices rise, companies will be more willing to hunt for crude and extract it. They'll invest in expensive deep-water wells and new technologies to wring more oil from existing fields. Consumers will start conserving energy. Even now, stock market investors and Silicon Valley venture capitalists are pouring billions of dollars into companies developing ethanol, solar power and other alternative sources of energy.

$3-a-Gallon Gas

More and more, however, the peaksters are drowning out everyone else, Cranberg says. "You can't turn around without seeing or hearing these ideas," he says. "I think they are gaining."

You don't have to be a geologist to understand why. The price of crude has tripled since 2000. In the U.S., $3-a-gallon gasoline has sapped consumers' confidence. Nearly half of Americans believe the economy is doing poorly, according to a July 28-Aug. 1 Bloomberg/Los Angeles Times poll. Fifty-nine percent of Americans expressed a negative view of Bush's handling of the economy.

"If oil was still at $20, no one would be talking about peak oil," says Manouchehr Takin, senior petroleum upstream analyst at the Centre for Global Energy Studies, a London-based consulting firm.

High oil prices are only part of the story, however. The world is straining to feed its energy habit. Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.

Big Question Mark

No one knows for sure how much oil the world has. That's a big question mark because the peaksters say production will max out once half of the oil has been pumped. So far, we've extracted about 1 trillion barrels in all. In 2000, the U.S. Geological Survey estimated global resources at 3 trillion barrels, enough to push peak production out to 2037, according to the EIA. Campbell puts the total lower, at 2.5 trillion barrels.

Oil is certainly getting harder -- and more expensive -- to find and extract. Oil discoveries plummeted to 5 billion barrels in 2005 from 90 billion barrels in 1964, according to Campbell.

"Discovery is in long-term decline, and spending more money won't increase it," says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.

OPEC's Stash

Oil companies have to find enough crude to offset dwindling production at existing fields, which can decline by more than 8 percent a year, and to keep pace with rising demand. Most of that increase will have to come from members of the Organization of Petroleum Exporting Countries, which are often cauldrons of discontent, war and terror.

The cartel's members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- together sit atop 75 percent of the world's reserves and account for about 42 percent of total production, according to BP.

OPEC countries are hardly paragons of economic and political stability. Most of the terrorists who attacked the U.S. on Sept. 11, 2001, came from Saudi Arabia. The war in Iraq has hurt that country's ability to pump oil. Bush says Iran is trying to develop nuclear weapons. In Venezuela, President Hugo Chavez has said he wants to diversify oil exports away from the U.S.

In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day -- almost 57 percent more than it did last year -- to satisfy the world's needs, the report says.

Meeting the Call

"We believe the resource base will support this increase, assuming that investments in development are made in a timely fashion," the report says.

OPEC countries will invest a combined $100 billion in the five years through 2010 so they can increase output, OPEC spokesman Omar Ibrahim says. "We are set to meet the extra call on OPEC to 2030," Ibrahim says.

Yet even now, OPEC nations are struggling to keep up. Since 2000, OPEC has gradually lost the spare pumping capacity its members can use as an emergency reserve to moderate prices. The cushion has dwindled to about 1.5 million barrels a day from 6 million barrels a day, Takin says.

What's more, neither the peaksters nor oil industry executives know for sure how much oil OPEC has and how much it can actually produce. OPEC countries haven't been transparent about their reserves or production capacity, says Mike Rodgers, a partner at PFC Energy, a Washington-based oil industry consulting firm. "OPEC is the big unknown," he says.

Overstated Reserves

Many energy analysts believe OPEC nations began overstating their resources in the 1980s, when the cartel linked members' production quotas to the size of their reserves, says Mamdouh Salameh, an independent oil economist. In the late '80s, cartel members raised their reserve estimates by a combined 300 billion barrels even though none of them had actually found much more oil.

In his 2005 book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" (John Wiley & Sons, 448 pages, $24.95), Simmons says the Saudis have pumped so much oil so fast that the country's biggest oilfields face declining output.

"Saudi Arabia is keeping everything in the dark," Simmons, 63, says.

Saudi officials have dismissed peak-oil theorists and suggestions that their country is running on empty.

Saudi Assurances

"We currently manage approximately 260 billion barrels of oil," Abdallah Jum'ah, CEO of Saudi Aramco, the government-owned oil giant, said at an oil and gas conference in June. "We continue to expand our reserve base, and conservatively estimate our additional potential of recoverable oil to be in the range of 200 billion barrels. At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce."

Herman Franssen, former chief economist at the Paris-based International Energy Agency, says some OPEC members, such as Iran, Iraq, Kuwait and Venezuela, may be reluctant or unable to produce more oil even as prices soar, largely for political reasons.

"We may never see the volumes of conventional oil production that we see in official forecasts," says Franssen, who's now an oil industry consultant in Chevy Chase, Maryland.

Sadad al-Husseini, who spent 35 years working for Saudi Aramco, says Saudi Arabia's reserves are sound but that Kuwait, which says it has reserves of 101.5 billion barrels, probably has half that much. Iran, with official reserves of 132.5 billion barrels, has likewise overstated its reserves, says Husseini, who was an executive vice president at Saudi Aramco before retiring in 2004.

Assume the Worst

"Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next 10 years," he says. That's millions of barrels a day short of what the EIA says the world will need in 2015.

Political leaders, business executives and investors should assume OPEC won't be able to satisfy future demand, Rodgers says. "From an energy-security point of view, if you believe in a non- OPEC peak and OPEC is not being transparent, we have to assume they don't have it," he says.

The precarious balance of supply and demand in the oil markets became even clearer in early August when London-based BP Plc announced it would temporarily shut down its Prudhoe Bay oil field on the North Slope of Alaska because of pipeline corrosion. The news drove already-high oil prices up more than $2 to almost $77.

Alaskan Decline

Prudhoe Bay, the largest oil field in the U.S., is part of the peak-oil story. The field was discovered in 1968 and came onstream in 1977. Since then, it has yielded more than 11 billion barrels of oil.

Yet even before the August mishap, this vast field had begun to die. Its output has fallen 73 percent to 400,000 barrels a day from a height of 1.5 million barrels a day in 1989.

Prudhoe Bay is following the life cycle of oil fields across the U.S. and around the world, a phenomenon known as the Hubbert Curve, which takes its name from M. King Hubbert.

Fifty years ago, Hubbert, then a geologist at Shell Oil Co.'s research lab in Houston, postulated that U.S. oil production would follow a bell-shaped curve.

At the 1956 meeting of the American Petroleum Institute in San Antonio, Hubbert predicted that total annual U.S. output would climb steadily, level off sometime between 1965 and '70 and then decline after about half of the country's reserves had been depleted.

Hubbert's Peak

The U.S. reached what geologists now refer to as Hubbert's Peak in 1970. Hubbert died in 1989 at the age of 86.

It wasn't until the late 1990s when Hubbert's ideas, which had percolated for decades in academia and oil circles, began to reach a wide audience via Campbell, the British geologist.

Now in his eighth decade, Campbell is a grandfatherly man with a shock of gray hair. He hardly comes across as a doom- monger. He works out of a two-story house in Ballydehob, a village on the western edge of Ireland.

Campbell spent 40 years exploring for oil for Amoco Corp. and other companies. He helped Amoco search for oil in Ecuador and then, during the 1980s, led its exploration in Norway. He later joined PetroFina SA, the oil exploration company now owned by Total.

After retiring from PetroFina in 1990, Campbell joined forces with Jean Laherrere, a retired French geophysicist who had spent 25 years working at Total, to analyze production profiles for the world's countries.

Campbell says he and Laherrere, now 75, looked at their data and concluded global oil production was approaching its zenith. In 1998, they co-wrote an article for Scientific American magazine titled "The End of Cheap Oil" that helped popularize their cause.

Coming Crunch

"The world is not running out of oil -- at least not yet," Campbell and Laherrere wrote. "What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend."

In 2000, Campbell founded the Association for the Study of Peak Oil and Gas, an informal organization for fellow travelers. Now known as ASPO International, the group has sponsored five annual conferences, including the one in Pisa in July, which drew more than 230 people. It's now run by Kjell Aleklett, a physics professor at Uppsala University in Sweden. Twenty independent national ASPO groups have sprung up around the world, from Australia to France, to the U.S.

Many peaksters are driven by a moral imperative to spread the word. Campbell says he's a scientist, not a social or environmental crusader. Even so, he says he's worried that oil has harmed human society and the planet. Since the Oil Age dawned, nearly 150 years ago, the Earth's population has soared six-fold, he says.

Man Alone

"Man is the only animal that uses external energy," Campbell says.

Asked why he has championed the peak-oil theory, Laherrere quotes Antoine de Saint-Exupery, author of "The Little Prince": "We don't inherit the Earth from our ancestors; we borrow it from our children."

Activists have jumped on the peak-oil bandwagon and added their own, often strident, voices to the debate over the future of oil.

Jim Kunstler, a writer-activist who lives in Saratoga Springs, New York, says peak oil will ultimately destroy suburbia and plunge the U.S. into a violent dark age of feudalism.

"The question is, Can we run our shit the way we are running our shit?" Kunstler, 57, says. In 2005, Kunstler wrote "The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century" (Atlantic Monthly Press, 320 pages, $23), which warns of the havoc to come.

Dieoff.com

Lifeaftertheoilcrash.net, a Web site run by lawyer and peak- oil entrepreneur Matt Savinar, warns, "Civilization as we know it is coming to an end soon." The site sells peak-inspired books and products, including an investor's guide to peak oil.

Another site, dieoff.com, says wars over oil and other natural resources will eventually erupt and millions of people will be wiped out.

Stephen Andrews, a Denver-based energy consultant who founded ASPO-USA in June 2005, says the alarmists have hurt the peak-oil movement.

"The peak-oil tent has different voices -- some shrill, some more sober -- reaching different conclusions from the same facts," Andrews, 59, says.

Andrews has attracted more-sober voices to the movement. Last November, Denver Mayor John Hickenlooper helped co-sponsor a two- day peak-oil conference organized by Andrews.

"I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say that there is no peak is shortsighted," Hickenlooper says.

Crash Program

The world would have to embark on a crash mitigation program 20 years in advance to prevent peak oil from hobbling the global economy, says Robert Hirsch, a senior energy program adviser at San Diego-based research and engineering firm Science Applications International Corp. "And I consider myself an optimist," says Hirsch, 71, who included his findings in a 2005 study on peak oil for the U.S. Department of Energy and estimates such a program would cost the world $1 trillion a year.

Some investors and analysts see lots of opportunities in a post-peak world.

Charles Maxwell, senior energy analyst at Weeden & Co., an independent research firm based in Greenwich, Connecticut, says high oil prices will spur companies to invest in unconventional sources. Few people, however, realize how much such projects will cost or how long they will take to come onstream, he says.

Take the Canadian oil sands. This region in Alberta holds 175 billion barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP), the world's second-largest reserves.

`Really Big'

"It's big. It's really big," Neil Camarta, senior vice president for oil sands at Calgary-based Petro-Canada, says of the region. "It can keep America going for 25 years."

The oil sands hold vast stores of bitumen, a tarlike substance that is mined, rather than pumped, and then processed into oil that can be refined. The process is expensive -- and getting more so. Rising operating and capital costs have driven the price of mining and upgrading bitumen to as much as $40 a barrel, Camarta says.

By 2020, Canada's oil sands will yield 4 million barrels a day, almost four times what they do now, according to CAPP. That sounds like a lot until you realize that 4 million barrels is just over a third of what Saudi Arabia produced per day in 2005.

Pickens, who built Mesa Petroleum Co. into one of the world's largest independent oil and gas producers, says he sees trouble -- and opportunity -- in peak oil. Pickens, who collected a degree in geology from Oklahoma State University in 1951, has called for the construction of more nuclear power plants and the promotion of alternative energy. He says he's invested in the Canadian oil sands.

Pickens's Picks

"I'm a disciple of Hubbert," Pickens, 77, says. "I think we've peaked and we are going to see an undersupply of oil."

Clarium Capital's Thiel says he began thinking about peak oil in 1999. As the Internet bubble grew that year, Thiel, 38, says he started to wonder about other risks that investors might be ignoring and seized on the uncertain future of oil.

"Energy will be systematically undervalued until peak oil is priced in," Thiel says. He's bought shares of Calgary-based EnCana Corp., which has invested in exploration and new production, and of oil services companies like New York-based Schlumberger Ltd. and Houston-based Weatherford International Ltd., which stand to profit as explorers hunt for oil and drill wells. Thiel says he's leery of U.S. oil majors, such as Exxon Mobil, because they may become targets of new taxes once the government wakes up to peak oil.

Thiel himself says the peak will come by 2008 -- if it hasn't already. "Geology will trump technology," he says.

Coal, Uranium

Eric Sprott, CEO of Toronto-based Sprott Asset Management Inc., says he became a peak-oil convert after hearing Campbell speak in 2004. Sprott, who helps manage 3.6 billion Canadian dollars (US$3.2 billion), says the bull market in energy has only just begun. He's invested 36 percent of his firm's assets in a variety of areas that could benefit from peak oil. His flagship hedge fund returned 41 percent in 12 months ended July 31, he says.

Sprott's investments include St. Louis-based Arch Coal Inc. and Brisbane, Australia-based Macarthur Coal Ltd. His oil and gas picks include Halifax, Nova Scotia-based Corridor Resources Inc.; Denver- based Delta Petroleum Corp.; and Houston-based Ultra Petroleum Corp. He has also invested in Australian uranium companies Energy Resources of Australia Ltd. and Paladin Resources Ltd.

Midnight Ride

Meanwhile, the peaksters aren't about to let up. They'll convene in Boston on Oct. 25-27 to sound their alarm at a conference called "Time for Action: A Midnight Ride for Peak Oil." The title is a reference to the American patriot Paul Revere, whose horse ride in 1775 warned Massachusetts colonists that British soldiers were advancing. The battle that followed, at Lexington and Concord, marked the beginning of the American Revolution.

It was just 84 years after Revere took his ride, on Aug. 27, 1859, that Edwin Drake struck oil in Titusville, ushering in the Oil Age. Exxon Mobil says the era of oil isn't about to end. In one of its ads, the company says, "Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year or for decades to come." The ad depicts a man looking through binoculars at a snowcapped mountain whose summit is hidden by clouds.

Campbell says the illustration actually drives home the point Exxon Mobil is trying to avoid. "Even though it is obscured by clouds, we know there is a peak," Campbell says. His investor followers are betting he's right.

Posted by Hugo Albert Orwell at 06:37 PM | Permalink | TrackBacks (0)

Posted by Hugo Albert Orwell at 05:35 PM | Permalink | TrackBacks (0)

Source: The Financial Express [India]

BEIJING, AUG 24 : Venezuela, seeking to diversify its crude exports and ease reliance on the US market, hopes to increase oil sales to China by six times to 1 million barrels a day in the next decade, President Hugo Chavez said on Thursday.

On his fourth visit to Beijing, Chavez also said Chinese President Hu Jintao gave him a personal assurance of support in his bid for a seat on the United Nations’ Security Council - in opposition to US-backed Guatemala. Energy cooperation is the cornerstone of the burgeoning relationship between the world’s second-largest consumer and fifth largest exporter. The plan by Chavez to ramp up supplies is likely to help cement ties that are worrying Washington.

“We hope in a few years to reach a half million barrels a day of oil to China, and further forward, 1 million barrels in the next decade,” Chavez told reporters after a formal welcome at the Great Hall of the People in Beijing. Venezuela currently supplies China with around 160,000 bpd of crude — out of total Chinese imports of nearly 3 million bpd — and has said it aims to more than triple that by 2009. The two countries have signed billions of dollars worth of investment agreements, including energy and petrochemical deals worth around $2 billion, Chavez said.

These included a deal for China National Petroleum Corp. (CNPC) to operate the eastern Zumano fields, and for the joint operation of the Junin 4 block of the Orinoco heavy oil belt with state oil firm PDVSA, officials said at a signing ceremony.

They declined to put a value on individual contracts. China has been keen to keep the trip focused on business to avoid antagonising Washington, which gets around 12% of its imports from Venezuela.

—Reuters

Posted by Hugo Albert Orwell at 07:32 PM | Permalink | TrackBacks (0)

Source: The Seattle Times

Excerpts:

Fifty-eighty percent of all petroleum burned in the United States comes from abroad, the U.S. Energy Information Administration says in its 2005 annual report. That stark dependency on outsiders, analysts say, will grow even if the last pockets of oil in America are drilled.

Oil and anger in Nigeria

Back in Nigeria, Felicia, Beatrice and Comfort were running through their village of Itak Abasi. They clutched packets of rehydration salts.

The medicine was free, distributed by health officials. The village wells were tainted with fecal matter. And people were dying of acute gastric infections, possibly cholera. Two children had succumbed that day. Another two would die the next week. The doctors were angry.

Itak Abasi — "Foundation of God" in the local Ibibio language — is a rural slum festering atop a sandbar at the mouth of the Akwa Ibom River. Its hovels squat half a mile from the Exxon Mobil oil-export terminal that supplied the bulk of African crude purchased by Marathon and sold in South Elgin. Since 1971, the facility has funneled billions of dollars' worth of petroleum to the United States. Itak Abasi seethes next door with neither plumbing nor electricity.

"The oil companies are no good," said villager Sunday Jeremiah, 40. "We are crying daily."

He is a fisherman. And the young girls — ages 10, 11 and 13 — are three of his seven children. Exxon Mobil's local subsidiary, Mobile Producing Nigeria, pumps the local oil fields in a joint venture with the Nigerian National Petroleum Corp. The U.S. oil giant has a complex relationship with its destitute neighbors. It helped renovate the village's schoolhouse, but it also spilled at least 40,000 barrels of crude into the sea in 1998. Fishermen say the spill permanently destroyed the village's traditional livelihood.

The Texas-based giant is both courted and reviled by the Ibibio people. The Nigerian central government for the most part is invisible. Asked why villagers didn't dig latrines — a simple way to blunt fatal gastrointestinal epidemics — Itak Abasi's old, bald-headed chief snapped, "That's the oil company's job!"

Seeking new sources

Few Americans realize it, but they have hitched their wagon — or rather their 210 million cars and trucks — to Africa's troubled star.

The planet's only remaining superpower is rattling its half-empty oilcan at the poorest continent in the world.

This state of affairs has come about because two-thirds of the world's oil is controlled by the Organization of the Petroleum Exporting Countries (OPEC), and most of it is pooled in the Middle East. Chronic instability in that region — today stoked by the U.S. intervention in Iraq and Israel's battle with Hezbollah — has further encouraged the United States to hedge its oil bets elsewhere.

U.S. companies have trudged to Central Asia looking for low-quality oil. They are punching wells into the ecologically fragile shallows of the Caspian Sea. And they are investing billions in upgrading huge but risky oil fields in business-hostile Russia.

Nigeria, Africa's oil heavyweight with 36 billion barrels of reserves, boasts one-seventh of Saudi Arabia's bounty. Still, African crude has its advantages. It is light and low in sulfur — well-suited to pollutant-sensitive U.S. refineries. Its reservoirs are closer.

Americans already get more oil from Africa than from Saudi Arabia. By 2015, oil experts say, African states will supply one-quarter of U.S. imports, up from 15 percent today. The United States quietly signaled this shift in 2002, when the State Department declared African oil a "strategic national interest," meaning in diplomatic code that U.S. troops may intervene to protect it.

"I think the U.S. military would find our swamps worse than Iraq," snorted Austin Onuoha, a Nigerian human-rights activist who specializes in oil issues. "But at least they might build some infrastructure after they invade. Americans always do this, right?"

Onuoha's sarcasm was well-earned. He was talking from his blacked-out house in the oil-rich Niger Delta. The electricity in Africa's petro-giant had winked out again. And this fit sourly into his main thesis: Oil is rotting Africa's frail democracies.

According to the World Bank, 80 percent of Nigeria's $340 billion in oil revenue has been pocketed by 1 percent of the population — a cast of thugs who include the world's most venal politicians and generals. In short, geysers of easy petrodollars corrupt weak African institutions. They unleash reckless government spending. And they usually stoke internecine fighting.

Port Harcourt, the decaying commercial center of the Niger Delta, should be the booming capital of a tropical oil kingdom that spouts as much crude as three Alaskas. Instead, it's a handmade slum. Foreign oil workers zip around in curtained minivans, hoping to avert kidnapping by criminal gangs and ethnic militias. The hotels are guarded by men sporting aviator sunglasses and Kalashnikovs.

Rounding out the picture is world-class pollution (at least 4,800 oil spills over 20 years), "bunkerers" (oil thieves who drill into pipelines, often incinerating themselves and hundreds of others), and brutish military tactics (Nigerian troops torching thatched villages and strafing oil smugglers' barges with helicopter gunships). Nobody knows the death toll in the delta.

The tightest crude market in 30 years is turning Nigeria's obscure swamp skirmishes into a global energy flash point. Nigerian insurgents announce their next attack on a Shell platform — and crude futures quiver in Tokyo and New York. Oil first hit the $50-a-barrel mark in 2005 when an SUV-driving warlord named Mujahid Dokubo-Asari threatened "all-out war" in the delta.

"We know the world covets Nigerian oil more than ever," said Onengiya Erekosima, a Bible-quoting spokesman for the Niger Delta People's Volunteer Force, one of many militias in the lawless squalor of Nigeria's oil patch.

About one-quarter of Nigeria's 2.3 million-barrel-a-day crude flow is regularly choked off by the likes of Erekosima.

"We will force the international community to respond to our suffering," he said, "because we can cut off their crude at any time."

Exxon Mobil says it paid coastal communities millions of dollars in restitution after the huge 1998 spill. Company spokeswoman Susan Reeves said Exxon Mobil's subsidiary, in cooperation with the Nigerian national oil company, also spends $10 million to $12 million a year on community development, most of it on education, health, roads, micro-enterprises and agricultural assistance. Little of such money is evident in Itak Abasi, however.

Posted by Hugo Albert Orwell at 05:59 PM | Permalink

Source: John R. Wilson and Griffin Burgh, "The Hydrogen Report: An Examination of the Role of Hydrogen in Achieving US Energy Independence", TMG (The Management Group), July 2003

Excerpt:

In most instances, the total energy cost of producing, compressing, liquefying, transporting and deliverying [hydrogen] to the user will be far higher than the energy recovered from it. In addition, it is inconvenient and often dangerous to use. It makes no contribution whatever to energy independence — i.e., to weaning the US off Imported energy supplies — and almost no real contribution to eliminating or minimizing environmental issues such as global warming — that all has to be dealt with at the hydrogen or energy manufacturing plant and is independent of the choice of fuel.

Alternate document source: The Hydrogen Report: An Examination of the Role of Hydrogen in Achieving US Energy Independence

Posted by Hugo Albert Orwell at 11:39 PM | Permalink

Source: ASPO-5 Live

Source: Petrodollar Warfare by William R. Clark

One of the crucial concept required to understand the importance of Peak Oil relates to a phenomenon in physics commonly described as Energy Return on Energy Invested, or EROEI. Unlike the traditional financial metric, Return on Investment (ROI), EROEI refers to the amount of energy spent compared to the energy extracted. EROEI is the ratio between energy expended to extract a barrel of oil, versus the energy provided by that barrel of oil.

Fifty years ago when some of the super-giant oil fields were still being discovered, one of these could produce an EROEI of 200, that is, energy 200 times greater than the actual energy expended to extract the oil. In contrast, oil wells in deep water currently achieve an EROEI of 5. Oil removed from the tar sands, as found in Canada (and Venezuela), have a very low EROEI of 1.5, along with a slow extraction process.

Once global Peak Oil is reached and exceeded, a critical point is attained on the downward side of Hubbert's curve, when it requires more energy to extract a given unit of oil than what it will produce if extracted. Of the remaining oil in the ground or at the bottom of the ocean, a positive EROEI is required if that oil is the be used as transportation fuel. To reiterate, when the energy required to extract very low-grade or geographically undesirable oil is equal to or greater than the energy that would be provided by that new barrel of oil, it will no longer be logical to expend the energy to extract the oil. In such a scenario, the EROEI for that oil field becomes an energy sink, and the oil will simply remain in the ground.

It is for these reasons that the world will never technically run out of oil; rather, it will ultimately become simply too energy-intensive to extract low-quality or geographically inaccessible oil. Unlike ROI calculations, the amount of money invested in a mature oil field is completely irrelevant if the energy required to extract the oil is greater than the energy that would be derived from recovering the oil.

Despite the historic, social, economic, and geopolitical implications of global Peak Oil, many governments still appear reluctant to publish this information — even though the facts regarding global oil discovery and production are perfectly apparent to the rational observer. Instead, the global society has acquired an unfounded belief that more oil will be discovered as needed in order to further economic growth, but this is a false construct.

Source: Petrodollar Warfare by William R. Clark

Posted by Hugo Albert Orwell at 04:59 PM | Permalink

Source: http://www.energybulletin.net/primer.php

What is Peak Oil?

Peak Oil is the simplest label for the problem of energy resource depletion, or more specifically, the peak in global oil production. Oil is a finite, non-renewable resource, one that has powered phenomenal economic and population growth over the last century and a half. The rate of oil 'production,' meaning extraction and refining (currently about 84 million barrels/day), has grown in most years over the last century, but once we go through the halfway point of all reserves, production becomes ever more likely to decline, hence 'peak'. Peak Oil means not 'running out of oil', but 'running out of cheap oil'. For societies leveraged on ever increasing amounts of cheap oil, the consequences may be dire. Without significant successful cultural reform, economic and social decline seems inevitable.

Why does oil peak? Why doesn't it suddenly run out?

Oil companies have, naturally enough, extracted the easier-to-reach, cheap oil first. The oil pumped first was on land, near the surface, under pressure, light and 'sweet' (meaning low sulfur content) and therefore easy to refine into gasoline. The remaining oil, sometimes off shore, far from markets, in smaller fields, or of lesser quality, takes ever more money and energy to extract and refine. Under these conditions, the rate of extraction inevitably drops. Furthermore, all oil fields eventually reach a point where they become economically, and energetically, no longer viable. If it takes the energy of a barrel of oil to extract a barrel of oil, then further extraction is pointless.

M. King Hubbert - the first to predict an oil peak

The Hubbert Curve is used to predict the rate of production from an oil producing region containing many individual wells. Source: aspoitalia.net

In the 1950s a U.S. geologist working for Shell, M. King Hubbert, noticed that oil discoveries graphed over time, tended to follow a bell shape curve. He posited that the rate of oil production would follow a similar curve, now known as the Hubbert Curve (see figure). In 1956 Hubbert predicted that production from the US lower 48 states would peak between 1965 and 1970. Shell tried to pressure Hubbert into not making his projections public, but the notoriously stubborn Hubbert went ahead and released them. In anycase, most people inside and outside the industry quickly dismissed Hubbert's predictions. In 1970 US oil producers had never produced as much, and Hubbert's predictions were a fading memory. But Hubbert was right, US continental oil production did peak in 1970, although it was not widely recognized for several years, and only with the benefit of hindsight.

No oil producing region fits the bell shaped curve exactly because production is dependent on various geological, economic and political factors, but the Hubbert Curve remains a powerful predictive tool.

Although it passed by largely unnoticed, the U.S. oil peak was arguably the most significant geopolitical event of the mid to late 20th Century, creating the conditions for the energy crises of the 1970s, leading to far greater U.S. strategic emphasis on controling foreign sources of oil, and spelling the begining of the end of the status of the U.S as the world's major creditor nation. The U.S. of course was able to import oil from elsewhere, and life continued there with only minimal interuption. When global oil production peaks however, the implications will be far greater.

So when will oil peak globally?

Hubbert went on to predict a global oil peak between 1995 and 2000. He may have been close to the mark except that the oil shocks of the 1970s slowed our use of oil. As the following figure shows, global oil discovery peaked in the late 1960s. Since the mid-1980s, oil companies have been finding less oil than we have been consuming.

Source: peakoil.ie

Of the 65 largest oil producing countries in the world, up to 54 have past their peak of production and are now in decline, including the USA (in 1970/71) and the North Sea (in 2001). Hubbert's methods, and variations on them, have been used to make various projections about the global oil peak, with results ranging from 'already peaked', to the very optimistic 2035. Many of the official sources of data used to model oil peak such as OPEC figures, oil company reports, and the USGS discovery projections, upon which the international energy agencies base their own reports, can be shown to be very unreliable. Several notable scientists have attempted independent studies, most notably Colin Campbell and the Association for the Study of Peak Oil and Gas (ASPO).

Source: peakoil.ie

ASPO's latest model suggests that 'regular' oil peaked in 2004. If heavy oil, deepwater, polar and natural gas liquids are considered, the oil peak is projected for around 2010. Combined oil and gas, as shown above, are expected to also peak around 2010. Other researchers such as Kenneth Deffeyes and A. M. Samsam Bakhtiari have produced models with similar or even earlier projected dates for oil peak. Precise predictions are difficult as much secrecy shrouds important oil and gas data.

Other quite different types of analysis have provided supporting evidence to these 'early peak' scenarios, most notably UK Petroleum Review editor Chris Skrebowski's Oilfields Megaproject reports, and energy banker Matthew Simmons' analysis of Saudi Arabian oil fields.

The effects of natural gas peak are more localized due to the economic and energetic expense of liquefying and transporting natural gas as LNG. Both British and North American natural gas production have already peaked, so these nations may be facing dual energy crises.

What does Peak Oil mean for our societies?

Our industrial societies and our financial systems were built on the assumption of continual growth – growth based on ever more readily available cheap fossil fuels. Oil in particular is the most convenient and multi-purposed of these fossil fuels. Oil currently accounts for about 43% of the world's total fuel consumption [PDF], and 95% of global energy used for transportation [PDF]. Oil is so important that the peak will have vast implications across the realms of geopolitics, lifestyles, agriculture and economic stability. Significantly, for every one joule of food consumed in the United States, around 10 joules of fossil fuel energy have been used to produce it.

The 'Hirsch Report'

A risk mitigation study on Peak Oil was released in early 2005, commissioned by the US Department of Energy. Prepared by the Science Applications International Corporation (SAIC), and titled “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” [PDF], it is known commonly as the Hirsch Report after its primary author Robert L. Hirsch. The executive summary of the report warns that "as peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." [Emphasis added.] Unfortunately nothing like the kind of efforts envisaged have yet begun.

But it's just oil - there are other fossil fuels, other energy sources, right?

To evaluate other energy sources it helps to understand the concepts of Net Energy, or the Energy Returned on Energy Invested ratio (EROEI). One of the reasons our economies have grown so abundant so quickly over the last few generations is precisely because oil has had an unprecedently high EROEI ratio. In the early days of oil, for every barrel of oil used for exploration and drilling, up to 100 barrels of oil were found. More recently, as oil recovery becomes more difficult, the ratio has become significantly lower. Certain alternative energy 'sources' may actually have EROEI ratios of less than one, such most methods of industrially producing biodieseland ethanol. That is, when all factors are considered, you probably need to invest more energy into the process than you get back.

Hydrogen, touted by many as a seamless solution, is actually an energy carrier, but not an energy source. Hydrogen must be produced using an energy source such as natural gas or nuclear power. Because of energy losses in transformation, the hydrogen will always contain less energy than was invested in it.

Some alternatives such as wind and hydro-power may have much better ERoEI, however their potential expansion may be limited by various physical factors. Even in combination it may not be possible to gather from renewable sources of energy anything like the amount of energy that industrial society is accustomed to. Richard Heinberg uses the metaphor that whereas fossil fuels might be considered a massive energy inheritance, and one spent perhaps unwisely, renewables are much more akin to a hard won energy wage.

For certain tasks, such as air travel, no other energy source can readily be substituted for oil. As noted by the Hirsch Report, alternative energy infrastructures require long periods of investment, on the scale of decades, to be widely implemented. We may be already leaving the period of cheap energy before we have begun seriously embarking on this task.

It's perhaps worth noting briefly that any ERoEI study is complex and different methods of accounting can come up with vastly different results, so any net energy study might be viewed with some suspicion. Perhaps the best method yet developed is Howard Odum's eMergy analysis. But we may not know with total certainty the usefulness of any renewable energy technologies until the hidden fossil fuel energy subsidies are finally removed.

What can be done?

Many people are working on partial solutions at various different levels, but there is probably no cluster of solutions which do not involve some major changes in lifestyles, especially for the global affluent. Peak Oil presents the potential for quite catastrophic upheavals, but also some more hopeful possibilities, a chance to address many underlying societal problems, and the opportunity return to simpler, healthier and more community oriented lifestyles.

The Post Carbon Institute Outposts. The Post Carbon Institute is a think tank devoted to exploring the implications of, and preparing for, Peak Oil, focusing on relocalization. They write, “the most important initiative of the Post Carbon Institute is working with groups of concerned citizens to prepare their community for the Post Carbon Age. These groups are Outposts in the sense that they are community-based extensions of the Post Carbon Institute; they operate autonomously yet receive guidance and electronic infrastructure from the Institute. Outposts work cooperatively in their local community to put theory about living with less hydrocarbons into practice while sharing knowledge and experiences with the global network of outposts.”
www.postcarbon.org
www.relocalize.net

The Community Solution to Peak Oil. Many excellent resources are available through the website of this US based organisation "dedicated to the development, growth and enhancement of small local communities... that are sustainable, diverse and culturally sophisticated." The Community Solution have organised two recent grassroots Peak Oil conferences, and have developed a case study of Cuba, a country which has relatively successfully adapted to an artificial oil peak.
www.communitysolution.org

Permaculture: Permaculture is a 'design science' which can allow us to live in relative abundance with minimal resource use. Permaculture principles can be used to functionally redesign social systems, built environments, ecological and agricultural practices for energy descent. David Holmgren's recent book, Permaculture: Principles and Pathways Beyond Sustainability, deals explicitly with the global oil peak and proposes permaculture as the best set of strategies for dealing with 'energy descent'.
www.permaculture.org.au
www.holmgren.com.au

Local Energy Descent Action plans: Several communities around the world have begun their own preparations for Peak Oil, and are documenting the process. The Kinsale Energy Descent Action Plan out of rural Ireland is the world's first local action plan for Peak Oil, dealing with many issues including health, education, tourism and youth issues. Local organisers within the town of Willits, Califonia have begun work on the Willits Economic LocaLization Project in response to Peak Oil.
www.transitionculture.org - Kinsale EDAP editor Rob Hopkins' blog
www.willitseconomiclocalization.org

Oil Awareness Meet Ups is a grass roots awareness raising network helping people meet up and discuss peak oil. Join or start a meet-up in your neighborhood.
oilawareness.meetup.com

Local Currencies and Steady State Economics:
Local Currencies: Richard Douthwaite, a 'recovering economist', has proposed a number of alternative monetary systems to deal with energy decline and the associated monetary crises which might arise post-peak. Local currencies like LETS are in operation around the planet already (although LETS itself may be somewhat problematic). Experiment now with local currencies to help survive economic crises.
The Foundation for the Economics of Sustainability (FEASTA) has some of Richard Douthwaite's publications available for free online, including entire books as well as masses of other excellent research and articles by other writers, relating not just to economics and local currencies, but to various aspects of sustainability. See also: www.communitycurrency.org/resources.html Steady State Economics: The Center for the Advancement of the Steady State Economy (CASSE) promote alternatives to the ecological insanity of growth based economics. Read their position paper here:
www.steadystate.org/PositiononEG.html

Intentional Communities: Intentional Community (IC) is an inclusive term for ecovillages, cohousing, residential land trusts, communes, student co-ops, urban housing cooperatives and other related projects and dreams... ICs represent one of the sanest ways of dealing with energy peak.
www.ic.org
gen.ecovillage.org
www.cohousing.org

Surviving Peak Oil: A good collection of essays edited by Dale Allen Pfieffer on "what measures can people of limited means undertake to ease their transition into a post-petroleum world."
www.survivingpeakoil.com

The Depletion Protocol: (previously refered to as the Uppsala or Rimini Protocol) is an ethical global political framework for sharing the world's remaining oil reserves more equitably than free market forces would allow, to avoid resource wars and profiteering. Help promote it:
Introduction to the Depletion Protocol by Colin Campbell (Word .doc format) How to avoid oil wars, terrorism, and economic collapse by Richard Heinberg

Tradable Energy Quotas (TEQs) are a system for rationing fuel which includes everyone – individuals, industry and the Government – and which enables users to sell any rations they do not use.
www.teqs.net

Lobbying: Lobby governments to spend now on renewable energy and improving agricultural practices. Many facts are summarized in the following 'convince sheet' by Bruce Thomson: greatchange.org/ov-thomson,convince_sheet.html

Online Discussions:
Got questions? Want to talk with like-minded people? See these links:
www.peakoil.com - online news and forum
www.peakoilaction.org - meet people on and offline
groups.yahoo.com/group/RunningOnEmpty3 - a group for Peak Oil beginers
groups.yahoo.com/group/EnergyResources - original peak oil focused email list
groups.yahoo.com/group/RunningOnEmpty2 - a more solutions, self-sufficiency focused list
groups.yahoo.com/group/EnergyRoundTable - a group emphasizing discussion and politics
There are numerous local mailing lists too, many on yahoo can be found at this link:
groups.yahoo.com/search?query=peak%20oil&ss=1

Other links

Where can I get more information?

Several articles already published on this site provide good introductions to this topic: The coming global energy crunch. A great introductory article by Aaron Naparstek Plan War and the Hubbert Oil Curve, an interview with Richard Heinberg The Petroleum Plateau by Richard Heinberg on the current plateau in world oil production. Debunking the mainstream media's lies about oil by Dale Allen Pfeiffer The oil we eat by Richard Manning looks at modern agricultures' dependence on fossil fuels

There are some great introductory websites like:
Wolf at the Door: A Beginner's Guide to Oil Depletion - available in French, Polish and English.
Life After The Oil Crash – a question and answer style introduction.
Peak Oil Center - a very concise introduction.

Some excellent original media about peak oil is being generated at:
Global Public Media - many excellent interviews in multiple formats
From The Wilderness Publications - passionate site with a geopolitical and conspiracy themes

Research and reference articles can be found at:
ASPO - original research from The Association for the Study of Peak Oil & Gas
ASPO Ireland - The Irish branch of ASPO through which Colin Campbell now publishes the ASPO monthly newsletter
DieOff.com - an alarming but scholarly collection of research. The original Peak Oil website.

More energy news:
Crisis Energética - in Spanish

More links, and books to read: An excellent list of links is maintained here: www.dynamiclist.com/?worldview/peakoil

Posted by Hugo Albert Orwell at 03:31 PM | Permalink

Source - NewScientist magazine, July 15-21, 2006

It appears that neither biodiesel nor ethanol are truly viable alternatives to the hydrocarbon molecule and it's unfortunate that the current 'hype' in both are leading to a false panacea in the minds of American citizens.

In the battle of the biofuels, biodiesel turns out to be greener than ethanol. Sadly, neither will go very far to replace petrol and deisel in our vehicles, however.

David Tilman at the University of Minnesota in St. Paul and his colleagues have worked out the environmental costs of producing ethanol from maize and biodiesel from soybeans. Their caluculations include the fuel needed to make and run farm machinery, and make pesticides and fertilizers.

Tilman and colleagues found that using ethanol would only reduce greenhouse gas emissions by 12 per cent compared with petrol, while biodiesel reduces emissions by 41 per cent against diesel (Proceedings of the National Academy of Sciences, DOI: 10.1073/pnas.06046000103).

They caluculate that even if the US turned all its corn and soybeans into biofuel, this would cover less than 5 per cent of current needs.

Posted by Hugo Albert Orwell at 03:08 PM | Permalink