Transcript World’s Growing Thirst for Oil/Energy Boosts Global Tensions

Global Policy Challenges
to Our Oil Addiction
Jarod A. Holtz
1 December 2005
Introduction
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Abundant oil is a basic assumption of our middle-class economic perspective
and lifestyle, and together with coal and gas amounts to 80% of energy
production globally.
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The cost of oil based products, which are nearly omnipresent, has seemed
normal and affordable. This is not the case for 20-30% of the U.S.
population, nor for the several billion people in less-developed countries.
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However now a high percent of the world’s previously oil-deprived
population aspires to a middle-class existence that requires far more abundant
petroleum supplies.
Introduction
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As the twilight of oil approaches in Saudi Arabia and across the Middle East
the entire perspectives of these nations, and of all nations around the globe
will change.
These altered perspectives will specifically influence their economic behavior
and political attitudes.
Massive issues and global trends will emerge from the cumulative responses
of billions of individuals as they each adapt in their own specific way to the
scarcity or denial of something they have long taken for granted.
Energy planners and scientists must always keep in mind the global nature of
this coming problem, and how political leaders and policy makers might view
the issues and solutions differently, even when science provides seemingly
superior recommendations.
United States Energy Consumption
Twilight in the Desert
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For oil enthusiasts who believe that petroleum will remain abundant for
decades to come, any talk of an imminent “peak” in global oil production and
an ensuing decline has easily been countered with a simple mantra: “Saudi
Arabia, Saudi Arabia, Saudi Arabia.”
For years every energy supply model has stated Saudi oil is so plentiful and
inexpensive to produce it could easily supply growing demand through at least
the year 2030.
Past assumptions: Saudi oil would produce 20-25 million barrels per day
within the next two decades.
Demonstrated production capacity for 2004 was 10 million barrels per day.
One half of the estimate.
However, Saudi Arabia has always been very secretive about its oil capacity
and production capabilities.
Hydrocarbon Reserves/Production Ratios by
Region
Doubting Thomas’
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Just within the last year there have been several expressions of doubt
from eminent sources.
In 2005 energy investment banker Matthew Simmons wrote Twilight in
the Desert: The Coming Saudi Oil Shock and the World Economy.
Basic points:
 Most of Saudi Arabia’s oil output generated by few giant fields,
Ghawar—the world’s largest—is the most prolific.
 Giant fields first developed forty to fifty years ago, have given up
much of their easily extracted petroleum.
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To keep production high, Saudis have come to rely increasingly on
the use of water injection and other secondary recovery methods to
compensate for the drop in natural field pressure.
Ratio of water to oil in these underground fields rises to the point
where further oil extraction becomes difficult, if not impossible.
Ninety percent of Saudi oil from only seven super giant fields that
have matured, grown old.
The “Good” News
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Simmons believes twilight of Saudi oil is not a distant fantasy, but
something the world needs to consider sooner rather than later.
Previous similar statements have tended to be disregarded by policy
makers and governments, or laughed at as environmentalists’ wishful
thinking.
Instead Simmons’ detailed studies have been backed up by several
former Saudi oil executives.
The “good” news is for the first time in many years, U.S. officials,
including President Bush have shown multiple signs of agreement.
U.S. Secretary of Energy Samuel Bodman recently stated: “Oil and
natural gas availability has been severely impaired and the effects of
this will reverberate through the economy of this country for some
time.”
However, U.S. government has no comprehensive agenda for energy
conservation.
Growing Demand: The 800 lb. Gorilla
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Even if Middle East oil supplies could be maintained, nothing on the horizon
suggests growth in oil consumption is nearing end.
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Increasingly clear that of five billion people who historically used little or no
oil, are now adopting the tastes, behaviors, and lifestyles of more affluent
nations.
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Rising demand over the past decade has altered the previous market balance
turning oil from a relatively abundant to increasingly scarce commodity.
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China and India are the most aggressive new entrants into the energy markets,
with the worlds largest populations, and two of the fastest growing
economies.
Projected Population Growth by
Region
China & India: New (Big) Kids on the Block
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The developing oil needs of China and India are huge, and both qualitatively
and quantitatively different from those of developed nations.
Leaders in these countries arguably understand these needs better than in
more prosperous countries.
They are using every means, short of military force to secure sources of
energy supply including:
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Diplomatic relations and foreign aid
Direct investment
Bilateral agreements
Technology assistance and transfer
Exploitation of frictions between Western nations and non-Western oil
producers
Chinese and Indian Bi-lateral Agreements and
Discussion
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China
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Saudi Arabia
Iran
Venezuela
Russia
Sudan
Libya
Chad
Nigeria
Angola
Gabon
Various others
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India
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Iran
Venezuela
Syria
Kazakhstan
Yemen
Sri Lanka
Nigeria
Chad
Angola
Cameroon
Various others
Growing Thirst for Oil Boosts Global Tensions
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Threat of global peak and decline of oil for years or decades, without sizeable
energy replacements has broad implications for economies and foreign
policies of all the world’s countries.
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How would the world embrace such a decline?
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By allowing market forces to peacefully allocate dwindling resources
until they’re no longer needed or not available?
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Or would countries got to war over access to oil fields around the
globe?
World Oil Consumption by Region and Country
Group
Friction Points Are Already Evident
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The United States has been in a war in Iraq for two years that is, at least
in part, about U.S. pre-eminence in the Middle East, by far the world’s
biggest oil and energy region.
The China National Offshore Oil Co. (CNOOC), 70% owned by the
Chinese government, tried this summer to buy California based Unocal
Inc. only to be stared down by hostile U.S. politicians. Most of Unocal’s
oil and gas holdings are in Southeast Asia, and therefore of great
interest to China.
Both China and India this year made major long term supply deals with
Iran, a country the U.S. and E.U. have tried to isolate diplomatically
and economically because of its historical relations to both, ties to
terrorism, and potentially unfriendly nuclear ambitions.
Japan and China continuously flex their muscles with military
deployments around disputed waters that hold (smallish) energy
reserves.
Various regimes around the world (i.e. Sudan, Uzbekistan, Venezuela)
maintain power in large part due to oil/gas reserves.
Currently All Roads to Energy Security
(Unfortunately) Meet in the Middle East
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The House of Saud is not the most stable government in the world. If it were
to be overthrown, or severely disrupted every nation would seek to curry
favor with the new government, whatever the post-scenario environment.
Imperative for Middle East oil producers to invest their current windfall
products toward creating educated societies and economies based on more
than oil.
Middle East OPEC countries will see their population double in next twenty
years, from 600 million to over 1 billion.
If oil prices remain as low as they have been for next twenty years, gap
between ruling elites and impoverished masses will only grow.
Such a model is unsustainable. Social chaos, increasingly violent terrorism,
and political or military revolutions would become normal events.
“Best” Case Scenarios
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Higher oil prices, but not too high.
 The move to alternative energies will be much smoother when they
become competitive with oil and fossil fuels.
 If prices become too high too quick, the global economy would likely
slow to a recession if not a depression.
 A “fair” long-term price for oil is one that generates enough money to
deliver financial returns to keep the current energy economy going—it
takes a lot of money to do so.
 Energy analysts must begin to calculate the real future costs of sustaining
oil supplies at a reasonable level
Avoid collapse of the current petroleum economy.
 Collapse could be triggered by a number of things—but specifically
catastrophic disruptions brought on by conflict and/or massive price
fluxes in oil.
Global Transportation by Region: 2005-2025
500
business-as-usual
moderate efficiency gain
450
aggressive efficiency gain, hybrid vehicles
same + used car transfer
400
350
300
Growth in Transportation Energy By Region 1999 – 2020
%
Croissance de l’Energie de Transport par Région 1999 - 2020
250
200
150
100
50
0
North America
Western
Europe
Industrialized
Asia
Developed world
EE/FSU
Developing Asia
Middle East
Africa
Developing world
Latin America*
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A collapse would certainly be a boon for the environment (hurrah!), but it
would also certainly bring about heaping doses of human suffering.
As oil becomes a scarce resource, its use will have to be rationed in one way
or another, and used only in its most valuable applications.
By necessity this will require carefully orchestrated plan globally, as well as on
a country-by-country basis.
The ultimate solution, as we all know, involves a transition to a new form(s)
of energy that probably doesn’t exist yet.
Getting from here to there will require a series of bridges to buy time.
This plan must embrace any and all forms of alternative energy that relieves
our addiction to global oil, while conserving what oil is left in a reasonable
manner that doesn’t lead to blood shed.
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It will take consumers as well as policy makers alike to realize the problem in
time, and take the proper steps to usher in a new age beyond dependence on
oil.
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For better and worse, oil has in many ways brought the world and human
societies to where we are today.
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But it will take a genuine scientific revolution, as well as policy
transformations to bring us beyond it into a world of even greater global
security and prosperity.
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“Amateurs discuss strategy, professionals discuss logistics.”
Sources
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Bengtsson, Lennart, “The Global Energy Problem,” ESSC, University of
Reading, UK, Max Planck Institute for Meteorology, Hamburg, Germany.
“Key World Energy Statistics,” International Energy Agency (IEA),
http://www.eia.doe.gov/, 2004.
Mongoven, Bart, Stratfor: The Energy Debates: Imagining a New Policy Environment,
October 6, 2005.
Simmons, Mathew R., Twilight in the Desert: The Coming Saudi Oil Shock and the
World Economy.
The Economist: Big Oil’s Biggest Monster, January 8, 2005.
The Economist: Another False Dawn?, November 5, 2005.
“Transport and Energy Demand in the Developing World,” World Energy
Council, http://www.worldenergy.org/, 2004.