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Entering the Tough Oil Era

..............The Missing Trillions

A very similar prognosis emerges from a careful reading of "Facing the Hard Truths About Energy," the second major report to be released in July. Submitted to the U.S. Department of Energy by the National Petroleum Council (NPC), an oil-industrial association, this report encapsulated the view of both industry officials and academic analysts. It was widely praised for providing a "balanced" approach to the energy dilemma. It called for both increased fuel-efficiency standards for vehicles and increased oil and gas drilling on federal lands. Contributing to the buzz around its release was the identity of the report's principal sponsor, former Exxon CEO Lee Raymond. Having previously expressed skepticism about global warming, he now embraced the report's call for the taking of significant steps to curb carbon-dioxide emissions.

Like the IEA report, the NPC study does claim that -- with the perfect mix of policies and an adequate level of investment -- the energy industry would be capable of satisfying oil and gas demand for some years to come. "Fortunately, the world is not running out of energy resources," the report bravely asserts. Read deep into the report, though, and these optimistic words begin to dissolve as its emphasis switches to the growing difficulties (and costs) of extracting oil and gas from less-than-favorable locations and the geopolitical risks associated with a growing global reliance on potentially hostile, unstable suppliers.

Again, the numbers involved are staggering. According to the NPC, an estimated $20 trillion in new investment (that's trillion, not billion) will be needed between now and 2030 to ensure sufficient energy for anticipated demand. This works out to "$3,000 per person alive today" in a world in which a good half of humanity earns substantially less than that each year.

These funds, which can only come from those of us in the wealthier countries, will be needed, the council notes, in "building new, multi-billion-dollar oil platforms in water thousands of feet deep, laying pipelines in difficult terrain and across country borders, expanding refineries, constructing vessels and terminals to ship and store liquefied natural gas, building railroads to transport coal and biomass, and stringing new high-voltage transmission lines from remote wind farms." Adding to the magnitude of this challenge, "future projects are likely to be more complex and remote, resulting in higher costs per unit of energy produced." Again, think tough oil.

The report then notes the obvious: "A stable and attractive investment climate will be necessary to attract adequate capital for evolution and expansion of the energy infrastructure." And this is where any astute observer should begin to get truly alarmed; for, as the study itself notes, no such climate can be expected. As the center of gravity of world oil production shifts decisively to OPEC suppliers and to state-centric energy producers like Russia, geopolitical rather than market factors will come to dominate the energy industry and a whole new set of instabilities will characterize the oil trade.

"These shifts pose profound implications for U.S. interests, strategies, and policy-making," the report states. "Many of the expected changes could heighten risks to U.S. energy security in a world where U.S. influence is likely to decline as economic power shifts to other nations. In years to come, security threats to the world's main sources of oil and natural gas may worsen."

Read from this perspective, the recent reports from pillars of the Big- Oil/wealthy-nation establishment suggest that the basic logic of peak-oil theory is on the mark and hard times are ahead when it comes to global oil-and-gas sufficiency. Both reports claim that with just the right menu of corrective policies and an unrealistic streak of pure luck -- as in no set of major Katrina-like hurricanes barreling into oil fields or refineries, no new wars in Middle Eastern oil producing areas, no political collapse in Nigeria -- we can somehow stagger through to 2012 and maybe just beyond without a global economic meltdown. But in an era of tough oil, the odds tip toward tough luck as well. Buckle your seatbelt. Fill up that gas tank soon. The future is likely to be a bumpy ride toward cliff's edge...............

.......... News stories just out report that the Bush administration is planning to designate Iran's entire Revolutionary Guard Corps a "specially designated global terrorist" in order to tighten sanctions on that country. This follows a many-months-long drumbeat of U.S. claims against Iran -- for arming not just Shiite militias (and Sunni insurgents) with the most sophisticated roadside bombs to attack American troops, but the Taliban as well (an especially unlikely charge). It also follows a growing eagerness in Congress for passage of the Iran Counter-Proliferation Act; reports of rising administration frustration over the UN Security Council's unwillingness to pass a third round of sanctions against Iran; a flurry of insider leaks that the Cheney wing of the administration is again pushing for military action against the Iranians and that the Vice President himself has urged the launching of "airstrikes at suspected training camps in Iran run by the Quds force, a special unit of the Iranian Revolutionary Guard Corps"; reports that neocon think-tanks and pundits are joining the attack-Iran fray; constant claims from the President's commanders and diplomats that the hand of Iran is behind any administration misstep in the Middle East. In this context, it's worth remembering that the President has long claimed he would not leave office with the Iranian nuclear situation unsettled.

Michael Klare's latest piece offers perhaps the crucial context within which to consider Cheney's urge to launch an air assault on Iran. If we are, as Klare writes, entering a "tough-oil era," if global oil supplies are already under intense pressure and oil prices ready to leap on any hint of possible oil disaster anywhere on the planet, then imagine what a major air assault on Iran before January 2009 might mean. Actually, Secretary of Defense Robert Gates helped us imagine just this at his confirmation hearings back in December 2006 when asked about the effects of such an attack: "It's always awkward to talk about hypotheticals in this case. But I think that while Iran cannot attack us directly militarily, I think that their capacity to potentially close off the Persian Gulf to all exports of oil, their potential to unleash a significant wave of terror both in the -- well, in the Middle East and in Europe and even here in this country is very real."

Such an attack would, of course, be a straightforward act of global economic madness; but, given the cast of characters - a classic neocon quip of the pre-Iraq invasion period was ""Everyone wants to go to Baghdad. Real men want to go to Tehran..." -- that hardly takes the possibility off the hypothetical "table" where all "options" so obdurately remain. An assault on Iran aside, Klare, author of the indispensable Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum, suggests the nature of the hair-raising energy world we are now entering............