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Peak Oil Matters

A fresh perspective on the concept of peak oil and the challenges we face

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Tag: China

I haven’t touched on too many geopolitical issues (but see here and here for examples) as they bear upon Peak Oil, but that is a result of choices made, and not a determination that the subject is unimportant.

The recent publication of both German and Australian reports on Peak Oil (here and here—the subject of an upcoming post) have sparked a great deal of interest and chatter on the internet, and deservedly so. Coming on the heels of several other high profile reports this year, such as the United States Joint Forces Command’s Joint Operating Environment (JOE) report and a Lloyd’s/Chatham House white paper, keeping government concerns about Peak Oil away from public attention is becoming increasingly difficult.

The report from Germany cited above suggests that Peak Oil will happen this year, and it paints a disturbing picture of potential foreign relation and energy supply problems that will surely not be limited to Germany. The JOE report is not much more sanguine about future international challenges and potential conflicts, although it did not assert a specific date for Peak Oil (but did express serious reservations about the stability and availability of adequate supplies beyond the next few years).

As oil supplies diminish over time, the relative importance of oil-producing nations will likely increase, and with that added influence and power will be the likelihood that U.S. and other Western nations may find their preferences and “values” playing second fiddle to the preferences and values of those foreign suppliers—not all of whom share our ideals and objectives. It’s not at all far-fetched to consider the real possibility that active resistance to the growing political and economic might of these new international power players may result in a swift curtailment of oil supplies. That’s a powerful club for the Russias and Venezuelas and Saudi Arabias of the world to suddenly wield.

Seven of the fifteen largest suppliers of oil to the United States are on the State Department’s Travel Warning List, for their “long-term, protracted conditions that make a country dangerous or unstable.” [1] Who knows how the internal politics of those nations will play out in the years to come, and what the international/energy supply and security ramifications might be? Saudi Arabia, long-recognized as the leading oil exporter, has its own set of internal issues to contend with, as both Matthew Wild and this article make clear. We cannot passively assume that our primary suppliers of oil will remain so.

Relying on potentially unstable suppliers is not the most optimistic strategy, and we don’t have too many alternatives right now. Ignoring these geopolitical considerations is even less prudent.

Furthermore, the declining availability of fossil fuels will just as likely limit the opportunities we have to export our preferences and values to other nations in need of our assistance. Diminished influence in the international arena will carry its own set of consequences.

Coupled with the loss of political influence is the likelihood that our ability to project military might and protection will also be lessened. The military is the largest consumer of fossil fuels. If we continue to allocate the same percentages of energy supplies to our military, what happens to the rest of us? How will an even smaller pie be divided? And if we allocate fossil fuel supplies in the same proportions now, what happens to the comfort and security we derive from our then-decreased military capabilities? (The flip side, of course, is that proactively decreasing our dependence on fossil fuels lessens the need to project our military all over the world and at exorbitant costs—financial and otherwise.)

And let’s also not forget that diminishing supplies with the onset of peak oil production means that other nations will vie more aggressively for their fair share of oil supplies. The United States may find itself playing an international game it is not at all accustomed to playing—or prepared to play at all. Acceding to the types of political, economic or ideological “favors” that future suppliers may insist upon could prove a very difficult pill for this country’s leaders and citizens to swallow.

A sampling of headlines from just a few articles over the past few months about China’s aggressive acquisition of future oil supplies suggests another problem. They have the means to tie up a good chunk of future supply, and that behavior may be indicative of how future energy transactions take place, as the German report suggests.

“China Global Oil Shopping Spree” [2]

“China’s Global Shopping Spree” [3]

“Saudis Tighten China Energy Ties to Reduce U.S. Dependence” [4]

“China Looking To Make More Loan-For-Oil Deals – report” [5]

“China Now Controls Majority Of Canada’s Athabasca Oil Sands Corp” [6]

The longstanding practices of free market purchase and sale may not prove to be as enduring as we would expect. As the German report noted, “[b]ilateral, conditioned supply agreements and privileged partnerships, such as those seen prior to the oil crises of the 1970s, will once again come to the fore.” Suffering as we do from our arrogance and sense of entitlement because we’re Americans, the change in oil market practices in coming years will prove to be a distinct and unpleasant shock to our political and economic systems, with consequences spreading far and wide. We won’t be the only nation suffering, either, but that will be of little consolation.

Let’s also not ignore the fact that as supplier nations’ populations increase (Matthew Wild suggests that Saudi Arabia could have as many as 45 – 50 million people in twenty years’ time, more than double its 2000 population [7]), the needs of their own citizens will surely take precedence of those in other countries. Exports are usually derived from excess production after domestic usage is accounted for. (Mexico—one of our primary suppliers—has seen its oil exports to us decline by more than a third in just five years. That trend won’t be reversing course. That’s not encouraging.)

With hundreds of millions of citizens in less-developed parts of the world seeking their own version of the American Dream, where will that leave the gluttonous U.S. demand to be satisfied? (“Should China’s total per capita oil consumption reach the level of the United States, they will require basically all of the world’s current oil production. While it is highly unlikely that China’s per capita oil consumption will reach that level, even if it reaches half of the current U.S. level, they will require 40.7 million BOPD.” [8] That’s almost half of the world’s daily usage … not comforting.)

We’re beyond foolish and ignorant if we think that we’re always going to be first in line when oil is passed out just because we’re America.

Any sense that these are issues “out there” and not really affecting us in our daily, personal lives is a risk we should not be taking. What happens out in the real world oil markets has a direct impact on each and every one of us. The more information and understanding we possess, the better our chances of doing something to help mitigate the very real impact and consequences of declining oil production and supply. It’s understandably far more preferable to let “others” work on these issues, but we must give voice to our own concerns so that decisions and practices eventually implemented will have some marginal comfort and familiarity to us.

We are probably beyond the point where we can fully and properly prepare for effortless accommodations and transitions away from fossil fuel dependency, but having a say in how we all must deal with the effects of Peak Oil will help make those transitions more palatable.

Small consolations indeed.

Sources & References:

[1] http://www.energybulletin.net/stories/2010-09-03/exponentially-purpose-century-and-half-ignored-warnings – Exponentially on purpose: a century-and-a-half of ignored warnings – Published by Peak Generation on Fri, 09/03/2010 by Matthew Wild

[2] http://www.energytribune.com/articles.cfm?aid=3356; Posted on Mar. 02, 2010 By Michael Economides, ET editor in chief, and Xina Xie, ET China correspondent

[3] http://www.energybulletin.net/node/52256; 04/01/2010

[4] http://www.bloomberg.com/apps/news?pid=20601207&sid=afA7qKyLK44s

[5] http://www.forexyard.com/en/news/China-looking-to-make-more-loan-for-oil-deals-report-2010-05-17T101708Z

[6] http://www.treehugger.com/files/2010/01/china-now-controls-majority-canada-s-athabasca-oil-sands-corp.php

[7] http://www.energybulletin.net/stories/2010-09-03/exponentially-purpose-century-and-half-ignored-warnings (full cite above)

[8] http://oyetimes.com/views/columns/5880-have-we-passed-the-point-of-peak-oil – Have we passed the point of Peak Oil? by Glen Allen

“How horrendous, how destructive, and how ultimately-suicidal does the evidence have to be before we all agree that the age of cheap oil is over?” – Charles Cresson Wood [1]

“When are we going to stop behaving so stupidly?” – Bob Herbert [2]

“It’s time we moved on to something else, or this is going to kill us.” – Craig Severance [3]

“The Deepwater Horizon disaster reminds us that, of all non-renewable resources, oil best deserves to be thought of as the Achilles heel of modern society. Without cheap oil, our industrial food system—from tractor to supermarket—shifts from feast to famine mode; our entire transportation system sputters to a halt. We even depend on oil to fuel the trains, ships, and trucks that haul the coal that supplies half our electricity. We make our computers from oil-derived plastics. Without oil, our whole societal ball of yarn begins to unravel.

“But the era of cheap, easy petroleum is over; we are paying steadily more and more for what we put in our gas tanks—more not just in dollars, but in lives and health, in a failed foreign policy that spawns foreign wars and military occupations, and in the lost integrity of the biological systems that sustain life on this planet.

“The only solution is to do proactively, and sooner, what we will end up doing anyway as a result of resource depletion and economic, environmental, and military ruin: end our dependence on the stuff. Everybody knows we must do this.” – Richard Heinberg [4]

The hope is that more of us are starting to understand the implications, given the attention lavished on the Deepwater Horizon spill. The question remains: what are we going to do? Nodding our heads in agreement that we’re about to face enormous challenges to preserving our ways of life and industry won’t cut it. The truth is harsher: life as we’ve known it is going to change. How—and how much—are yet to be determined.

We’re already well past the point where we should have acknowledged the problems of declining oil production. Denial, or ignorance, or just waiting until some kind of magical solution comes along are beyond counter-productive at this point. Now we have to start the lengthy, complex, sacrifice-is-necessary process of restructuring the way we live, work, and produce. Plans have not yet been formulated, so we’re already behind.

And all of this, dear readers, is not going to happen any time soon. But we need to start. The longer we wait, the more problems to be overcome we’ll create. That is not our best strategy. We’re already going to be confronted with far more challenges than the vast majority of us realize or understand. None of us are likely prepared for all the changes and challenges we’ll have to confront.

The tin-foil-hat-is-on-too-tight crowd needs to step aside and acknowledge the reality that the Gulf of Mexico catastrophe (yes, Governor Barbour, that’s what it is) is one more signpost on the long road of oil production problems. Denial has served whatever ignorant and ridiculous purpose it might have been intended for. Now, it’s time for the adults among us to start dealing with the facts and the truths about oil production and fossil fuel availability.

Despite their efforts to disparage those of us convinced of the imminence of Peak Oil by uttering ridiculous claims attributed to us, we’re not going to “run out” of oil. But as I and many others have taken great pains to explain, we are going to start seeing problems with production keeping up with demand, and that diminishes our access and availability to the oil and gas we’ve become all too comfortable expecting. Lulls in the prices or availability of gasoline and oil should not be mistaken for anything other than lulls.

We need to keep in mind that the United States does not live in a vacuum, nor, despite the fervent yet misguided expectations of some, are we “entitled” to our fair share of oil and gas before anyone else. (By some estimates the Chinese will increase their ownership of autos by nearly a half billion in the next decade or so! Where is all that needed extra fossil fuel supposed to come from? And that’s just one growing economy!) Facts are annoying as hell, but there’s no getting around them….

The problems are inexorably going to get worse … not next week or next month, but well before we’ve had time to establish a new infrastructure and new methods of commerce and mass transit. We’ve got years of work ahead of us, and not nearly enough years to put it all in place before the serious problems appear.

We’re all in this together, even the paranoid, card-carrying knuckleheads who insist we have “infinite” supplies of oil (as soon as the words “Zionist cabal” or discussions about long-ago-discredited Russian claims about the origins of fossil fuel appear in a pseudo-argument, you know you’re dealing with someone whose sky is a different color than ours); we all have a stake in the solutions we fashion; and we all bear responsibility for the outcomes. What will we choose?

This is getting serious….

Sources:

[1] http://www.energybulletin.net/52986: The Questions You Ask Create The Future You Manifest; 06/02/2010 by Charles Cresson Wood
[2] http://www.nytimes.com/2010/06/01/opinion/01herbert.html: Our Epic Foolishness
by BOB HERBERT
[3] http://theenergycollective.com/TheEnergyCollective/67007: What Will it Take to End Our Oil Addiction? May 29, 2010 by Craig Severance
[4] http://www.energybulletin.net/node/52971: The End is nigh – Deepwater Horizon and the technology, economics, and environmental Impacts of Resource Depletion; 06/01/2010 by Post Carbon Institute

A while back I did an introductory series (here, here, and here) on the importance of infrastructure and its relationship to Peak Oil.

I’ve also mentioned from time to time that China is making great strides to not only develop its economy in leaps and bounds—as others have likewise noted; but it is doing so with a recognition of the importance of a sound infrastructure to future growth. China is also moving rapidly to incorporate high-speed rail as an essential component of its plans, recognizing how vital this mode of transportation will be in the years to come. (See this post, for example.)

Yesterday, Dave Johnson from The Campaign for America’s Future offered up an absolutely terrific piece (here) comparing China’s approach (and success with) its stimulus program as compared to the one from President Obama. For the narrow-minded among us, notably those whose knee-jerk opposition to any initiatives offered by our President resulted in his ambitious plans being trimmed in order to achieve passage—those who decry “big government” and think “tax cuts” are the magic elixir for all that ails us economically (yes, I’m speaking to you on the Right)—this piece should be mandatory reading.

Our infrastructure is absolutely critical to future growth; transportation is every bit as essential; and tax cuts and less government are precisely the wrong approach (saying “no” to everything has its drawbacks, after all) as we are about to embark on an economic journey no longer fueled by cheap and easy-to-access fossil fuels. It’s time for certain quarters to expand their horizons a wee bit and take stock of the challenges that face us.

Tax cuts and less government just aren’t in the cards now.

“No” is not a solution. Denial isn’t, either. All of us need to finally recognize this.

I’m still planning my next series of posts, which I don’t expect to begin until sometime next week, but two more articles of note crossed my desk in the last day or two, and are worth passing along if for no other reason than the fact that it clearly appears that other nations “get it” when it comes to the importance of high-speed rail and investing in transportation infrastructure.

 “Two years ago, nearly 90 percent of the six million people traveling between Madrid and Barcelona went by air. But early this  year the number of train travelers on the route surpassed fliers. The trajectory is ever upward.”

Like their counterparts in Germany and France, travelers in Spain are discovering the values inherent in high-speed rail travel, as this recent New York Times article makes clear.

And no nation seems more prepared and willing to devote the financial resources to this than China, as is evidenced here.

As that article notes, China is planning to connect its high speed rail line through 17 other countries in Asia and Eastern Europe, with additional plans to build in Southeast Asia and Russia. That is not an insignificant project, and if successful will clearly help position them as a solid economic leader for decades to come. That level of infrastructure and transportation commitment, as I have stressed frequently in recent posts, is absolutely vital to economic prosperity. Notwithstanding President Obama’s solid leadership, vision, and understanding of this, we fall woefully short in measuring up against China’s progress in these areas.

Our recent $8 billion down payment on high-speed rail transit, important as it is, doesn’t quite cut it when you consider that (as the New York Times articles noted) by 2020, half of Spain’s $160 billion transportation will be devoted to rail travel.

If we don’t figure it out that we have to join the high-speed rail game soon, we’ll pay a hefty price for a long time. As I keep insisting, short-term thinking and planning cannot be our strategy for economic revival and sustained growth. Transportation and infrastructure investments are of critical importance, and we ignore this at our peril.

More choices … and more opportunities

This morning, I came across an interesting online article from The Wall Street Journal.

The paper is reporting that Venezuela’s energy and oil minister is meeting in China with government and oil industry official there. The main topics of discussion will be a joint-venture refinery project and more Chinese government investment in the Venezuelan oil reserves. I discussed the heavy oil resources of Venezuela in yesterday’s post. (here)

In that post, I also noted that one of many geopolitical issues we need to be mindful of is that foreign oil producers are no longer falling all over themselves to seek relations with the United States, nor are they always anxious to make us their primary customer. Venezuela’s President, Hugo Chavez, is a notorious anti-American.

China and Venezuela have already entered into a number of oil and energy-related agreements, and other countries are also working out oil agreements with Chavez’s government (Italy being only the most recent one.)

Another recent article notes that Russia and Venezuela are likewise engaging in trade talks and oil cooperation.

Tellingly, after referencing several recent China-Venezuela oil deals, the Journal’s article notes that:

“These moves stem from Venezuelan efforts to fund development of its huge oil reserves and diversify sales away from its traditional main market, the U.S., including by boosting sales to China to 1 million barrels per day.”

Our blind dependence on foreign oil and a naïve assumption that going forward we will continue to import all the oil we need may crash head-first into political realities where those assumptions are by no means a given. Those realities carry with them real consequences, too.

Sources:

http://online.wsj.com/article/SB10001424052748704022804575040431689856008.html?mod=googlenews_wsjVenezuela, China in Oil Talks By SIMON HALL

http://news.xinhuanet.com/english2010/world/2010-02/01/c_13158157.htmRussia, Venezuela step up oil cooperation

Following up once more on my January 11th post about China’s increasing demand for oil (http://peakoilmatters.com/2010/01/11/the-world-of-transportation/), some more information courtesy of Tom Whipple and today’s Energy Bulletin:

China ended 2009 with oil imports averaging some 5 million b/d in December for the first time ever. Chinese demand is  expected to remain strong in 2010….Evidence abounds that China now is growing at an extraordinary pace

The Chinese Expressway system is growing in length so fast that it will likely surpass the US Interstate Highway system in two  years…Between the rapid growth of private passenger transportation, and the remaining diesel powered railroads, Chinese  transportation is probably almost as oil dependent as US transportation

Source:

http://www.energybulletin.net/node/51213 – Peak oil review – Jan 18 by Tom Whipple, ASPO-USA