|
The Twilight Era of Petroleum
By Michael T. Klare
08/10/05 "TomPaine.com" -- --
Several recent developments —persistently high gasoline prices,
unprecedented warnings from the Secretary of Energy and the major
oil companies, China's brief pursuit of the American Unocal
Corporation—suggest that we are just about to enter the Twilight
Era of Petroleum, a time of chronic energy shortages and economic
stagnation as well as recurring crisis and conflict. Petroleum
will not exactly disappear during this period—it will still be
available at the neighborhood gas pump, for those who can afford
it—but it will not be cheap and abundant, as it has been for the
past 30 years. The culture and lifestyles we associate with the
heyday of the Petroleum Age—large, gas-guzzling cars and SUVs,
low-density suburban sprawl, strip malls and mega-malls,
cross-country driving vacations, and so on—will give way to more
constrained patterns of living based on a tight gasoline diet.
While Americans will still consume the lion's share of global
petroleum stocks on a daily basis, we will have to compete far
more vigorously with consumers from other countries, including
China and India, for access to an ever-diminishing pool of supply.
The concept of a "twilight" of petroleum derives from
what is known about the global supply and demand equation. Energy
experts have long acknowledged that the global production of oil
will someday reach a moment of maximum (or "peak") daily
output, followed by an increasingly sharp drop in supply. But
while the basic concept of peak oil has gained substantial
worldwide acceptance, there is still much confusion about its
actual character. Many people who express familiarity with the
concept tend to view peak oil as a sharp pinnacle, with global
output rising to the summit one month and dropping sharply the
next; and looking back from a hundred years hence, things might
actually appear this way. But for those of us embedded in this
moment of time, peak oil will be experienced as something more
like a rocky plateau—an extended period of time, perhaps several
decades in length, during which global oil production will remain
at or near current levels but will fail to achieve the elevated
output deemed necessary to satisfy future world demand. The result
will be perennially high prices, intense international competition
for available supplies, and periodic shortages caused by political
and social unrest in the producing countries.
The Era of Easy Oil Is Over
The Twilight Era of oil, as I term it, is likely to be
characterized by the growing politicization of oil policy and the
recurring use of military force to gain control over valuable
supplies. This is so because oil, alone among all major trading
commodities, is viewed as a strategic material; something so vital
to a nation's economic well-being, that is, as to justify the use
of force in assuring its availability. That nations are prepared
to go to war over petroleum is not exactly a new phenomenon. The
pursuit of foreign oil was a significant factor in World War II
and the 1991 Gulf War, to offer only two examples; but it is
likely to become ever more a part of our everyday world in a
period of increased competition and diminishing supplies.
This new era will not begin with a single, clearly defined
incident, but rather with a series of events suggesting the
transition from a period of relative abundance to a time of
persistent scarcity. These events will take both economic and
political form: on the one hand, rising energy prices and
contracting supplies; on the other, more diplomatic crises and
military assertiveness. Recently, we have witnessed significant
examples of both.
On the economic side, the most important signals have been
provided by rising crude oil prices and warnings of diminished
output in the future. A barrel of crude now costs just over
$60—approximately twice the figure for this time a year
ago—and many experts believe that the price could rise much
higher if the supply situation continues to deteriorate.
"We've entered a new era of oil prices," said energy
expert Daniel Yergin in an April interview with Time
magazine. If markets remain as tight as they are at present,
"you'll see a lot more volatility, and you could see prices
spike up as high as $65 to $80."
Analysts at Goldman Sachs are even more pessimistic, suggesting
that oil could reach as high as $105 a barrel in the near future.
"We believe that oil markets may have entered the early
stages of what we have referred to as a ‘super-spike'
period," they reported in April, with elevated prices
prevailing for a "multi-year" stretch of time.
Of course, the world has experienced severe price spikes
before—most notably in 1973-74 following the October War between
Egypt and Israel and the Arab oil embargo, as well as in 1979-80
following the Iranian Revolution—but this time the high prices
are likely to persist indefinitely, rather than recede as was the
case in the past. This is so because new production (in such
places as the Caspian Sea and off the West coast of Africa) is not
coming on line fast enough or furiously enough to compensate for
the decline in output from older fields, such as those in North
America and the North Sea. On top of this, it is becoming
increasingly evident that stalwart producers like Russia and Saudi
Arabia have depleted many of their most prolific fields and are no
longer capable of boosting their total output in significant ways.
Until recently, it was considered heresy for officials of the
oil industry and government bodies like the U.S. Department of
Energy to acknowledge the possibility of a near-term contraction
in oil supplies. But several recent events signal the breakdown of
the dominant consensus:
-
On July 8, Secretary of Energy Samuel Bodman told reporters
from the Christian Science Monitor that the era of
cheap and abundant petroleum may now be over. "For the
first time in my lifetime," he declared, major oil
suppliers like Saudi Arabia "are right at their ragged
edge" in their ability to satisfy rising world demand
for energy. Despite the huge increase in international
demand, Bodman noted, the world's leading producers are not
capable of substantially expanding their output, and so we
should expect a continuing upward trend in gasoline prices.
"We are in a new situation," he asserted. "We
are likely at least in the near-term to be dealing with a
different pricing regime than we have seen before."
-
One week later, oil giant Chevron took out a two-page spread
in The New York Times, the Wall Street Journal
, and other major papers to signal its awareness of the
impending energy crunch. "One thing is clear," the
advertisement announced, "the era of easy oil is
over." This was an extraordinary admission by a major
oil company. The ad went on to say that "many of the
world's oil and gas fields are maturing" and that
"new energy discoveries are mainly occurring in places
where resources are difficult to extract, physically,
economically, and even politically." Equally revealing,
the ad noted that the world will consume approximately one
trillion barrels of oil over the next 30 years—about as
much untapped petroleum as is thought to lie in the world's
known, "proven" reserves.
Oil Shockwave
These, and other recent reports from trade and industry
sources, suggest that the anticipated slowdown in global petroleum
output will have severe economic consequences. If prices spike at
$100 a barrel, as suggested by Goldman Sachs, a global economic
recession is almost unavoidable. At the same time, the slowdown in
output is sure to have significant political and military
consequences, as suggested by another set of recent events.
The most notable of these, of course, is the domestic brouhaha
triggered by the $18.5 billion bid by the Chinese National
Offshore Oil Corporation (CNOOC) for U.S.-based Unocal, originally
known as the Union Oil Company of California. Unocal, the owner of
substantial oil and gas reserves in Asia, was originally wooed by
Chevron, which offered $16.8 billion for the company earlier this
year. The very fact that a Chinese firm had been prepared to
outbid a powerful American firm for control of a major U.S.-based
oil company is immensely significant in purely economic terms.
Since abandoned by the Chinese because of fierce American
political opposition, the effort, if consummated, would have
represented the largest transaction ever by a Chinese enterprise
in the United States. But the bid triggered intense political
debate and resistance in Washington because of CNOOC's ties to the
Chinese government—it is 70 percent owned by the
state—and because the principal commodity involved, oil, was
considered so vital to the U.S. economy and was thought to be less
plentiful than once assumed. Fearing that China might gain control
over valuable supplies of oil and gas that would someday be needed
at home or by U.S. allies in Asia, conservative politicians sought
to block CNOOC's acquisition of Unocal by recasting the matter in
national security terms.
"This is a national security issue," former CIA
Director R. James Woolsey testified before the House Armed
Services Committee in July. "China is pursuing a national
strategy of domination of the energy markets and strategic
dominance of the western Pacific"—a strategy, he argued,
that would be greatly enhanced by CNOOC's acquisition of Unocal.
Seen from this perspective, CNOOC's bid was considered a threat to
U.S. security interests and thus could have been barred by
Congress or the President.
The notion of blocking a commercial transaction by a major
foreign trading partner of the United States obviously flew in the
face of the reigning economic doctrine of free trade and
globalization. By invoking national security considerations,
however, the president is empowered to bar the acquisition of a
U.S. company in accordance with the Defense Production Act of
1950, a Cold War measure designed to prevent the flow of advanced
technologies to the Soviet Union and it allies. This is precisely
what was being proposed by a huge majority in the House of
Representatives. On June 30, the House adopted a resolution
declaring that CNOOC's takeover of Unocal could "impair the
national security of the United States" and therefore should
be barred by the president under terms of the 1950 law. This
outlook then made its way into the omnibus energy bill adopted by
Congress before its summer recess: Citing potential national
security aspects of the matter, the bill imposed a mandatory
120-day federal review of the CNOOC bid—effectively ensuring its
demise.
Further evidence of a growing amalgamation between energy
issues and U.S. national security policy can be found in the
Pentagon's 2005 report on Chinese military power, released on July
20. While in previous years this report had focused mainly on
China's purported threat to the island of Taiwan, this year's
edition pays as much attention to the military implications of
China's growing dependence on imported oil and natural gas.
"This dependence on overseas resources and energy supplies...
is playing a role in shaping China's strategy and policy,"
the report notes. "Such concerns factor heavily in Beijing's
relations with Angola, Central Asia, Indonesia, the Middle East
(including Iran), Russia, Sudan and Venezuela... Beijing's belief
that it requires such special relationships in order to assure its
energy access could shape its defense strategy and force planning
in the future."
The unclassified version of the Pentagon report does not state
what steps Washington should take in response to these
developments, but the implications are obvious: The United States
must strengthen its own forces in key oil-producing regions so as
to preclude any drive by China to dominate or control these areas.
Just how seriously American policymakers view these various
energy-related developments is further revealed in another recent
event: the first high-profile "war game" featuring an
overseas oil crisis. Known as "Oil Shockwave," this
extraordinary exercise was chaired by Senators Richard Lugar of
Indiana and Joe Lieberman of Connecticut, and featured the
participation of such prominent figures as former CIA Director
Robert M. Gates, former Marine Corps Commandant General P. X.
Kelley, and former National Economic Adviser Gene B. Sperling.
According to its sponsors, the game was conducted to determine
what steps the United States could take to mitigate the impact of
a significant disruption in overseas production and delivery, such
as might be produced by a civil war in Nigeria and a terrorist
upsurge in Saudi Arabia. The answer: practically nothing.
"Once oil supply disruptions occur," the participants
concluded, "there is little that can be done in the short
term to protect the U.S. economy from its impacts, including
gasoline above $5 per gallon and a sharp decline in economic
growth potentially leading into a recession."
Not surprisingly, the outcome of the exercise produced a great
deal of alarm among its participants. "This simulation serves
as a clear warning that even relatively small reductions in oil
supply will result in tremendous national security and economic
problems for the country," said Robbie Diamond of Securing
America's Energy Future (SAFE), one of the event's principal
sponsors. "The issue deserves immediate attention."
Entering the Era of Resource Wars
From what is known of this exercise, "Oil Shockwave"
did not consider the use of military force to deal with the
imagined developments. But if recent history is any indication,
this is sure to be one of the actions contemplated by U.S.
policymakers in the event of an actual crisis. Indeed, it is
official U.S. policy—enshrined in the "Carter
Doctrine" of January 23, 1980—to use military force when
necessary to resist any hostile effort to impede the flow of
Middle Eastern oil.
This principle was first invoked by President Reagan to allow
the protection of Kuwaiti oil tankers by U.S. forces during the
Iran-Iraq War of 1980-88 and by President Bush Senior to authorize
the protection of Saudi Arabia by U.S. forces during the first
Gulf War of 1990-91. The same basic principle underlay the
military and economic "containment" of Iraq from 1991 to
2003; and, when that approach failed to achieve its intended
result of "regime change," the use of military force to
bring it about.
A similar reliance on force would undoubtedly be the outcome of
at least one of the key imagined events in the Oil Shockwave
exercise: a major terrorist upheaval in Saudi Arabia leading to
the mass evacuation of foreign oil workers and the crippling of
Saudi oil output. It is inconceivable that President Bush or his
successor would refrain from the use of military force in such a
situation, particularly given the historic presence of American
troops in and around major Saudi oilfields.
In setting the stage for its simulated crisis, Oil Shockwave
identified a set of conditions that provide a vivid preview of
what we can expect during the Twilight Era of Petroleum:
-
Global oil prices exceeding $150 per barrel
-
Gasoline prices of $5.00 or more per gallon
-
A spike in the consumer price index of more than 12 percent
-
A protracted recession
-
A decline of over 25 percent in the Standard &
Poor's 500 stock index
-
A crisis with China over Taiwan
-
Increased friction with Saudi Arabia over U.S. policy toward
Israel
Whether we experience these precise conditions cannot be
foreseen at this time, but it is incontestable that a
slowdown in the global production of petroleum will produce
increasingly severe developments of this sort and, in a far
tenser, more desperate world, almost certainly threaten resource
wars of all sorts; nor will this be a temporary situation from
which we can hope to recover quickly. It will be a semi-permanent
state of affairs.
Eventually, of course, global oil production will not merely be
stagnant, as during the Twilight Era, but will begin a gradual,
irreversible decline, leading to the end of the Petroleum Age
altogether. Just how difficult and dangerous the Twilight Era
proves to be, and just how quickly it will come to an end, will
depend on one key factor: How quickly we move to reduce our
reliance on petroleum as a major source of our energy and begin
the transition to alternative fuels. This transition cannot be
avoided. It will come whether we are prepared for it or not. The
only way we can avert its most painful features is by moving
swiftly to lay the foundations for a post-petroleum economy.
Michael T. Klare is the professor of Peace and World
Security Studies at Hampshire College and the author, most
recently, of Blood and Oil: The Dangers and Consequences of
America's Growing Dependence on Imported Petroleum (Owl Books)
as well as Resource Wars, The New Landscape of Global
Conflict. This article first appeared on TomDispatch
and is reprinted with permission.
Copyright 2005 Michael T. Klare
Translate
this page
(In accordance with Title 17
U.S.C. Section 107, this material is distributed without profit to
those who have expressed a prior interest in receiving the
included information for research and educational purposes.
Information Clearing House has no affiliation whatsoever with the
originator of this article nor is Information Clearing House
endorsed or sponsored by the originator.) |
