Oil Find in Mexico Far From Success

The deep-water field will test the country's engineering and financial limits.

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About 60 miles from shore and three miles down through seawater and earth lies Mexico's best hope to replenish its slipping oil fortunes.

Mexican President Vicente Fox announced Tuesday that state-owned oil giant Pemex had hit serious pay dirt in the Gulf of Mexico: A deep-water exploration known as Noxal had tapped a field off the coast of the southern state of Veracruz that could contain as many as 10 billion barrels of oil. If the field pans out, it would be one of the largest in the nation's history and go a long way toward bolstering Mexico's rapidly declining petroleum reserves, which some experts have warned could run out in as little as 11 years.

"Noxal begins a new stage of petroleum exploration in our country," said Fox, speaking in the Veracruz city of Coatzacoalcos after visiting the drilling rig.

But the undersea riches won't come quickly, easily or cheaply. Not only could it take a decade for the new field to begin producing, but officials also acknowledge that the undertaking could push Mexico's engineering and financial capabilities to the limit.

The world's fifth-largest oil producer has little experience drilling in deep water, a technically challenging and expensive endeavor. Mexico's inefficient oil monopoly, Pemex, is indebted to the hilt. And the nation's constitution forbids equity investments by foreigners, which prevents Mexico from teaming up with major oil companies to find and extract more crude.

Despite high oil prices, Pemex lost about $4 billion in 2005, the eighth straight year that the company has bled red ink. It's a consequence of interest payments on its $50 billion in debt and staggering taxes. About 60% of Pemex's revenue goes to the treasury to finance one-third of federal spending on such things as schools and sewers.

That has left little for even basic maintenance, much less the big bucks needed for exploration and development. Privatization remains an anathema in Mexico, where the 1938 nationalization of the oil industry is celebrated as a federal holiday. Still, Pemex officials hinted Tuesday that they were looking for wiggle room to get Noxal pumping.

"We recognize that we should establish new mechanisms of collaboration with other petroleum companies with experience in deep waters," said Luis Ramirez Corzo, director general of Pemex.

"Certainly it's going to be welcomed if, in fact, it turns out to be true," said William Herbert, co-head of research at Simmons & Co. International, a Houston-based energy investment bank. Herbert said that among the challenges Mexico faced was obtaining technical talent and equipment to get the Noxal project underway quickly.

A major find by Mexico, the fourth-largest U.S. oil supplier, would be welcome news.

Herbert said the world's two biggest fields — Saudi Arabia's Ghawar and Mexico's Cantarell — were on the decline.

Located off the coast of Campeche state, Cantarell accounted for about 60% of the 3.3 million barrels a day that Mexico produced last year. The field's production peaked in 2004 at about 2.2 million barrels daily, and analysts say its output could begin falling by 10% or more annually within a few years.

"Replacing that much production is going to be a huge challenge" for Mexico, said Jed Bailey, senior director of Latin American research at Cambridge Energy Research Associates in Massachusetts.

[The crescendo of Peak Oil stories is not only increasing, it is moving into the powerful, opinion-shaping established media. This weekend CNN will be airing a huge one-hour special, We Were Warned: Tomorrow’s Oil Crisis, three times on Saturday and three times on Sunday. That means several things. Perhaps the most important is that Peak Oil is too big to hide and must be embraced. It ALSO means that the powers that be have decided that it’s time for the general public to get concerned.

For the record, oil industry geologist and ASPO founder Colin Campbell told us (and we reported) three years ago that stock buybacks would be an inevitable trend among the oil majors. Three years later we see that trend reported in the same story that acknowledges dwindling supplies, declining production, and questionable reserve data. – MCR]

Energy investors are smiling. Crude prices are skyrocketing, energy companies are enjoying record earnings, and share prices are climbing.

Record energy prices have diverted attention from the oil industry's dirty little secret: Production is falling and reserves are on the decline. Rather than address the problem, most oil companies are sinking their money into share buybacks and dividends to boost their stock prices.

Without new investment, companies run the risk of not having enough oil to sustain record profits and may hasten a far worse energy crisis. The country's national security, based largely around cheap and plentiful oil, could be put at further risk if oil becomes scarce and prices rise.

"From a national security standpoint, they'd be better served to continue drilling," says James Williams, an energy analyst at WTRG Economics in London, Ark.

Oil prices have doubled over the past two years, driven by growing demand from recovering American and Asian economies and lower supply levels caused by hurricanes, rebel attacks and wars. On Wednesday, oil closed at $62 on the New York Mercantile Exchange.

At the country's largest energy companies, revenue has soared thanks to high oil prices. Exxon Mobil (XOM:NYSE - commentary - research - Cramer's Take), the world's largest oil company, reported record earnings of $36.1 billion -- the highest for any American public company last year -- and beat its previous record of $25.3 billion in 2004. Earnings at the four other supermajors were just as stellar. Net income climbed 37% at Shell (RDS.A:NYSE ADR - commentary - research - Cramer's Take), 31% at BP (BP:NYSE ADR - commentary - research - Cramer's Take), 13% at Total (TOT:NYSE ADR - commentary - research - Cramer's Take) and 6% at Chevron (CVX:NYSE - commentary - research - Cramer's Take).

"The surge in oil prices took companies by surprise," says Fadel Gheit, an oil analyst at Oppenheimer & Co. in New York. "They didn't expect the windfall profits and were ill prepared to handle the instant wealth. It's like winning the lottery."

Some of those record profits are being funneled into share buybacks and dividends. Every time a company repurchases stock, it reduces the number of outstanding shares and increases an individual stakeholder's position. Buybacks can also pump up a company's earnings per share and stock price.

Last year, Exxon gave back $23.2 billion to shareholders, a 56% increase over 2004. Yet the oil giant sank only $17.7 billion in capital and exploration expenses, according to the company. BP distributed $19 billion in buybacks and dividends, but devoted $14 billion to investments. Shell invested $15.9 billion in capital expenses, and sent $17 billion to shareholders. Only Chevron spent more on its capital and exploration program to the tune of $11.1 billion, vs. $6.8 billion in shareholder distributions. But many investors see nothing wrong with this corporate largesse and contend oil giants are doing the right thing for shareholders.

"Instead of wasting money on a project, they're giving back to shareholders," says Lanny Pendill, an energy analyst at Edward Jones in St. Louis. "Ultimately, their fiduciary responsibility is to their shareholders."

In this era of record profits, exploration budgets have barely budged. Oil companies spent $57.7 billion in 2004, compared to $50.8 billion in 1998, figures from the U.S. Energy Department show. Their leeriness to invest is a holdover from the 1980s when Middle Eastern countries flooded the market with crude and drove prices down by 50%.

At the same time, production at the oil giants dropped between 1% and 7% last year. (BP posted a slight increase of 0.5%.) Output is falling because many oil fields are mature and are not producing as much as they used to. That means oil companies now have to drill deeper, in unconventional areas and in risky countries that require more money, time and technology.

"Production growth for most companies has been very elusive or nonexistent," says Bruce Lanni, an energy analyst with AG Edwards in San Francisco. "Keeping it flat is a major feat."

Companies, to compound the problem, are pumping more than they are replacing. The oil giants aim to replace 100% or more of their reserves each year, but Total and BP each restored 95% of their natural gas and oil reserves, while Shell added 70% to 80%. Chevron replaced a dismal 40% to 50%, according to company filings. Only Exxon found more oil and gas than it pumped last year, but its 143% replacement rate was largely dependent on one natural gas field in Qatar.

"If they can't replace, it's a big deal," says Charles Maxwell, a veteran energy analyst at Weeden & Co. in Greenwich, Conn.

Worse still, outsiders have no way of knowing whether these figures are accurate. Companies release their "reserve replacement ratios" once a year, often in their annual reports, yet don't disclose the production numbers or seismic data used to calculate them. That makes it nearly impossible for investors to verify a company's reserves, particularly when the numbers are not audited.

The supermajors, rather than drilling, have snapped up other companies to boost reserves. Last year, ConocoPhillips (COP:NYSE - commentary - research - Cramer's Take) purchased Burlington Resources for $35 billion, raising reserves by 24%. Chevron devoured Unocal for $18 billion and got a 15% boost to its reserves. For $8 billion, BP received a 50% stake in Russian oil company TNK and increased its reserves by 11% in 2003.

"The bulk of the replacement in the last three years was through acquisitions," says Gheit. "The easy oil has been discovered."

Ironically, it may be shareholders who have spurred the drive to spend more on distributions than exploration. That may be short-sighted because it leaves energy companies more vulnerable to plummeting production rates and could help lead to higher oil prices.

"If anyone's at fault, it's the shareholders who don't want to hold a stock for a decade," says Williams.

Exxon and Chevron, at their annual meetings with analysts last week, each pledged to spend more on exploration to quell growing criticism they were not doing enough to boost supplies. Chevron will invest $15 billion to $16 billion each year over the next three years, up from $11 billion in 2005. Exxon vowed to hike its spending by $2 billion to $20 billion between 2007 and 2010.

Altogether, oil companies likely will shell out 15% more or $238 billion this year, according to a Lehman Brothers report. But that may not be enough. The International Energy Agency, which advises 26 industrialized countries on energy policy, estimates companies will have to invest $250 billion per year over the next 25 years to avoid shortages.

The oil giants need to take a hard look at how they spend money if they want to resuscitate sluggish production rates. While they invest in shareholder distributions, they're losing new reserves to Indian and Chinese state-run oil companies eager to pay top dollar to feed their growing populations. Oil supplies are getting tighter, demand is rising and prices are going up on the few companies for sale.

If the supermajors remain unwilling to invest, get ready for even higher oil prices.

[The first little dominoes of Peak Oil are starting to fall. As little markets start to implode they will trigger a liquidity crisis that will magnify as it moves upward through the system. Is it any coincidence that the Fed stops publishing the M3 money supply in just a few days? March is shaping up to be just about as bad as we thought it would and today is, of course, the Ides of March.Et tu Brutus? – MCR]

Stock markets in the Gulf region and Egypt suffered major losses on Tuesday, triggering angry protests in Kuwait and prompting some analysts to forecast a crash after a solid five-year upward run.

The market in Opec kingpin Saudi Arabia, the largest in the Arab world, dropped sharply for the fourth consecutive day, reflecting what analysts said was a sharp correction across the region.

The value of Gulf bourses dropped on Tuesday to just under one trillion dollars, down some $150 billion from their 2005 value and more than $250 billion below the peak.

The Saudi Tadawul All-Shares Index (TASI) shed 4.75% to close below the 15,000-point psychological barrier for the first time this year at 14,900.40 points.

The TASI has so far lost 10.84% since the start of the year and a whooping 27.8% from its all-time high of 20,634.86 points reached on 25 February. It has shed 16.9% during the past four days.

"I think we are now at a serious turning point ... . It is certainly the beginning of a crash though the market is expected to resist at 12,200 points," said Ali Dakkak, professor of economics at Jedda-based King Abdulaziz University.

"We need swift actions and decisions to restore confidence to investors," a majority of whom are speculators who have been lured into the market by sharp price increases and handsome profits, Dakkak told AFP.

But Kuwaiti financial analyst Ali al-Nimesh characterised the fall as a "long-term correction" rather than a crash.

"It's still early to call it a crash. The indices are expected to rebound slightly sometime soon, but this appears to be a long-term correction cycle. It may continue for two years," Nimesh told AFP.

He said he expected the Saudi market to lose between 50% and 60% of its peak before rebounding.

In Kuwait, investors staged a protest outside parliament, urging MPs to intervene after the market registered its biggest single-day loss and closed at a six-month low.

"We want a complete probe into what has happened in the market since last Wednesday," when the index began to slide, demanded one investor. "Is our government weaker than those pirates?"

The Kuwait Stock Exchange Index finished down 3.7% or 382.90 points at 10,057.50 points, its lowest close since 14 September. It is now 12.1% below its 2005 close and down 16.6% from its all-time high of 12,054.70 set on 7 February.

The Kuwait Investment Authority, the state investment arm, promised to inject cash into the market on Wednesday after a protest by hundreds of small investors after the index dropped 257.8 points.

In Egypt, the Cairo stock market trimmed its losses to 6.62% after trading was stopped in early afternoon when the main index lost 11.3% in early afternoon trade, its biggest single-day drop in five years.

Analysts said a correction in the market was inevitable given the 148% gain in 2005 and the speculative bubble it fuelled.

"A correction was not only necessary but inevitable," said Ahmed Hefnawi, analyst with investment bank EFG-Hermes.

"There were people in Egypt that quit their jobs to play the stock market, today they will pay the price."

Dakkak attributed the regional loss to action by Saudi dealers, who invest heavily in all Gulf stock markets, and have recently pulled out to cover losses back home.

"It is a chain reaction. Saudi investors have withdrawn much of their money from stock markets in the Middle East, including Egypt and Jordan, causing them to decline."

Gulf markets have increased six to seven fold since 2001 because of abundant liquidity generated from a sharp rise in oil revenues.

The upward trend and lucrative profits lured millions of small investors including women.

"Almost 60% of Saudi investors are small dealers. They depend mainly on speculation and whenever a decline happens they try to exit, causing the market to slide," Saudi economist Abdulaziz al-Daghestani said.

"Recently it became like gambling and not investment in most Gulf markets. That's why we are seeing the fast fall."

A burst pipeline in Alaska's North Slope has caused the Arctic region's worst oil spill, spreading more than 250,000 gallons of crude oil over an area used by caribou herds and prompting environmentalists again to question the Bush administration's drive for more oil exploration there.

The leak was first spotted by a British Petroleum worker 11 days ago, and was reported to have been plugged a few days later. Initial hopes expressed by BP that the spill was limited to a few tens of thousands of gallons proved to be over-optimistic. Alaska's Department of Environmental Conservation has steadily increased its estimate of the size of the spill, the latest estimate putting it at around 265,000 gallons.

The leak, whose cause is unknown, occurred in a remote part of the most sparsely populated state in the United States, and it remains to be seen what damage, if any, it has done to ecosystems. It does, however, give grist to groups who have challenged Washington's assertion that oil can be prospected and shipped while leaving only the gentlest of "footprints" on the landscape.

"This historic oil spill is a catastrophe for the environment," Natalie Brandon, of the Alaska Wilderness League, said in a statement. "Tone-deaf politicians in Congress should now stop trying to push for more drilling through sneaky manoeuvres ... The fact that the oil spill occurred in a caribou crossing area in Prudhoe Bay is a painful reminder of the reality of unchecked oil and gas development across Alaska's North Slope."

The biggest battle has been over the fate of the Arctic National Wildlife Refuge, also on the North Slope, which the White House wants to open up. The initiative, championed from the moment the Bush administration took office in 2001, has been consistently blocked by Congress but is periodically revived.

A second battle, meanwhile, is taking place in a previously untouched corner of the National Petroleum Reserve on the North Slope. The Bush administration has allowed oil companies to prospect for oil and gas in an area covering 389,000 acres. Environmental groups have responded with a federal lawsuit, filed last Friday, in which they contend that the Department of the Interior has violated the Endangered Species Act and other laws in an area noted for its flocks of migratory geese.

It is not just environmentalists who oppose the administration's plans. Several prominent energy analysts, as well as Washington politicians, argue that the likely yield in unexplored areas of the North Slope is not large enough to justify the intrusion.

Alaskan politicians and industry lobby groups are heavily in favour of expanding exploration as it would bring jobs and other benefits to the state economy. The Bush administration, meanwhile, argues that further domestic exploration is essential if the United States wants to decrease its dependence on oil and gas from the Middle East.

Accidents and leaks have periodically occurred on the North Slope, and along the trans-Alaska pipeline that takes crude from Prudhoe Bay across two mountain ranges to the port of Valdez on the shores of the North Pacific. Saboteurs blew up a section of pipeline shortly after it opened in the 1970s, starting a major spillage. A hunter accidentally fired into the pipeline five years ago, causing $7m (£3.6m) worth of damage.

[Like other moves that are being made in this colossal game of chicken, these moves are to be expected in order to give credibility to both sides’ positions that they are preparing for war. Here, it’s pretty clear that Iran is doing everything they can to short circuit any CIA attempts to destabilize the country by encouraging a Kurdish separatist movement or labor unrest. – MCR]

Iranian authorities have imposed a de facto martial law in several volatile cities in the north-western province of Kurdistan as restive youths used the occasion of Iran’s traditional “fire festival” to hold anti-government protests, residents told Iran Focus by telephone on Tuesday.

Agents of the paramilitary police, the Revolutionary Guards, and plainclothes agents of the secret police, the Ministry of Intelligence and Security, moved in to take control of the cities to limit unrest as people took to the streets.

There is a heavy police presence at every major junction, square, and highway in and around the cities of Sanandaj, Piranshahr, and Mahabad and security forces are attempting to arrest any individual seeking to take part in protests.

During the festival, known as ‘chaharshanbeh souri’ – literally, Feast of Wednesday – people jump over bonfires to “drive away evil”. Since the 1979 Islamic Revolution, however, Iran’s theocratic leaders have made strenuous efforts to stamp out the festivities, but to no avail. In recent years, there have been extensive clashes between festive crowds and the security forces deployed to prevent street celebrations. This year the event falls on March 14.

In Piranshahr, banks, police cars, and government buildings were set on fire as violent clashes erupted on Saturday between security forces and angry residents.

Protests began after agents of the State Security Forces (SSF) shot and killed a young man in his car at a stop-and-search point.

At least five police vehicles were set on fire during the clashes between young protesters and security agents.

Reports from the Kurdish city of Mahabad in north-western Iran said that widespread clashes had broken out on Friday between residents and security forces after a detained man was shot at point blank by security agents.

Some 150 textile workers gathered on Monday outside the offices of Iranian President Mahmoud Ahmadinejad to protest against lay-offs and dismissal of workers in state-owned industries, local news agencies reported.

The workers complained that after years of labour in Kermanshah’s “Nasaji Qarb” textile factory, they had been fired days before the start of the Persian New Year, the news agency ILNA reported.

“Instead of justice-spreading government”, the workers said, Ahmadinejad’s government should be called the “sacking government”.

Ahmadinejad had run in the presidential campaign on a platform of purging corruption, mismanagement, and poverty in society but Iran experts say that workers in Iran have since become in a greater state of financial flux.

“We now understand what the esteemed government means when it says justice-spreading. From now on we will call it the ‘sacking government’”, one of the workers said.

“It is very hard to have to face your wife and child ashamedly on New Year’s Eve”, another worker said.

“If I wasn’t afraid of God … I would believe my life to be ‘haram’ (unholy)”, one of the protestors who had been working for the past 25 years said.

One protestor whose wife was ill said, “For eight years we worked and struggled, but if we had known that it would come to this, we would have gone to the enemy lines; may be they would have understood more our worth”.

“The closure of any factory means a rise in unemployment, prostitution, and poverty. Now, what do you think out future holds?”, another protestor said.

“We haven’t eaten anything”, one worker said. “Most of us have been awake from last night until now. We are worried for ourselves and our families”.

A grim view of the nation's energy future, and its implications for the military, emerges in a just released report by the U.S. Army Corps of Engineers.

"The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close," says the report, titled "Energy Trends and Their Implications for U.S. Army Installations." It concludes that at the current rate of consumption and production decline, the lifetime of proven domestic oil reserves is only 3.4 years. It projects the lifetime of proven worldwide oil reserves at 41 years, but with declining availability, noting that Saudi Arabia - home to the bulk of those reserves - has not increased production in three years.

The report was completed in September but was not released publicly until a request was made earlier this week by Rep. Roscoe Bartlett, a Maryland Republican who has made several speeches in recent months warning that the world is in the grip of "peak oil" - a time of declining production and rapidly escalating prices. The theory is highly controversial, and the oil industry maintains that there are abundant untapped resources, although admittedly more expensive to develop than has historically been the case. In a speech on the House floor Tuesday night, Bartlett quoted extensively from the report.

"The Army operates in a domestic and world energy situation that is highly uncertain," the report says. Even its outlook on nuclear energy, a key component of Bush administration policy, is not positive. "Our current throwaway nuclear cycle will consume the world reserve of low-cost uranium in about 20 years," the report says.

The researchers conclude that the military needs to take major steps to increase energy efficiency, make a "massive expansion" in renewable energy purchases, and move toward a vast increase in renewable distributed generation, including photovoltaic, solar thermal, microturbines, and biomass energy sources.

“The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close,” according to a recently released US Army strategic report. The report posits that a peak in global oil production looks likely to be imminent, with wide reaching implications for the US Army and society in general.

The report was sent to Energy Bulletin by a reader, and does not appear to be available elsewhere on the internet. However it is marked as unclassified and approved for public release.

[ UPDATE: Since we wrote those words several hours ago we've been informed that a reference to the document now appears on a Google search, including a link to the full PDF on a .mil server. "Somebody must be watching you guys!" writes reader SG. See notes below. -AF]

Author Eileen Westervelt, PE, CEM, is a mechanical engineer at the Engineer Research and Development Center (US Army Corps of Engineers) in Champaign, Ill. Author Donald Fournier is a senior research specialist at the University of Illinois’ Building Research Council and has worked with the Corps in the past.

Westervelt and Fournier give special credence to the work of independent energy experts, such as the Association for the Study of Peak Oil and Gas (ASPO) and the Oil Depletion Analysis Center (ODAC). They seem to place very little credibility on the more optimistic oil production forecasts of the international energy agencies. They reproduce ASPO graphs and quote ASPO member Jean Laherrere on why the US Geological Survey (USGS) future oil availability estimates are clearly overly optimistic:

The USGS estimate implies a five-fold increase in discovery rate and reserve addition, for which no evidence is presented. Such an improvement in performance is in fact utterly implausible, given the great technological achievements of the industry over the past twenty years, the worldwide search, and the deliberate effort to find the largest remaining prospects.

The authors warn that in order to sustain its mission, “the Army must insulate itself from the economic and logistical energy-related problems coming in the near to mid future. This requires a transition to modern, secure, and efficient energy systems, and to building technologies that are safe and environmental friendly.” The best energy options they conclude are “energy efficiency and renewable sources.” However, "currently, there is no viable substitute for petroleum."

They do not expect that any transition will be easy: “energy consumption is indispensable to our standard of living and a necessity for the Army to carry out its mission. However, current trends are not sustainable. The impact of excessive, unsustainable energy consumption may undermine the very culture and activities it supports. There is no perfect energy source; all are used at a cost.”

The report includes what looks like a solid overview of the pros and cons of all major renewable and non-renewable energy options. They consider problems associated with hydrogen, shale oil, biofuels and tar sands. On nuclear energy they note that "our current throw-away nuclear cycle uses up the world reserve of low-cost uranium in about 20 years." They hold more hope for certain solar technologies and wind turbines, however, "renewables tend to be a more local or regional commodity and except for a few instances, not necessarily a global resource that is traded between nations."

Overall this is surprisingly green sounding advice, and one might think out of left field for one of the most environmentally destructive and energy consuming institutions on the planet. And yet the report does not seem to be at odds with the Army's new Energy Strategy which sets out five major initiatives:

Eliminate energy waste in existing facilities
Increase energy efficiency in new construction and renovations
Reduce dependence on fossil fuels
Conserve water resources
Improve energy security

Westervelt and Fournier assert that changes must be made with urgency. However they express concerns that "we have a large and robust energy system with tremendous inertia, both from a policy perspective and a great resistance to change." In light of this, “the Army needs to present its perspective to higher authorities and be prepared to proceed regardless of the national measures that are taken.”

Westervelt and Fournier suggest "it is time to think strategically about energy and how the Army should respond to the global and national energy picture. A path of enlightened self-interest is encouraged." As we approach Peak Oil, what is ecologically sound and what is perceived to be to in an institution's practical benefit might tend to converge, at least in some respects - even those of an institution such as the US Army.

The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close. Domestic natural gas production peaked in 1973. The proved domestic reserve lifetime for natural gas at current consumption rates is about 8.4 yrs. The proved world reserve lifetime for natural gas is about 40 years, but will follow a traditional rise to a peak and then a rapid decline. Domestic oil production peaked in 1970 and continues to decline. Proved domestic reserve lifetime for oil is about 3.4 yrs. World oil production is at or near its peak and current world demand exceeds the supply. Saudi Arabia is considered the bellwether nation for oil production and has not increased production since April 2003. After peak production, supply no longer meets demand, prices and competition increase. World proved reserve lifetime for oil is about 41 years, most of this at a declining availability. Our current throw-away nuclear cycle will consume the world reserve of low-cost uranium in about 20 years. Unless we dramatically change our consumption practices, the Earth’s finite resources of petroleum and natural gas will become depleted in this century. Coal supplies may last into the next century depending on technology and consumption trends as it starts to replace oil and natural gas.

We must act now to develop the technology and infrastructure necessary to transition to other energy sources. Policy changes, leap ahead 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.

Our best options for meeting future energy requirements are energy efficiency and renewable sources. Energy efficiency is the least expensive, most readily available, and environmentally friendly way to stretch our current energy supplies. ... For efficiency and renewables, the intangible and hard to quantify benefits — such as reduced pollution and increased security — yield indisputable economic value.

Many of the issues in the energy arena are outside the control of the Army. Several actions are in the purview of the national government to foster the ability of all groups, including the Army, to optimize their natural resource management. The Army needs to present its perspective to higher authorities and be prepared to proceed regardless of the national measures that are taken....

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 front-line 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 1.3 to 2.45 times more economic value per MBtu than coal (Gever, Kaufman et al. 1991). Currently, there is no viable substitute for petroleum.

In summary, the outlook for petroleum is not good. This especially applies to conventional oil, which has been the lowest cost resource. Production peaks for non-OPEC conventional oil are at hand; many nations have already past their peak, or are now producing at peak capacity.

In general, all nonrenewable 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 the estimates leads to the conclusion that world oil production may peak within a few short years, after which it will decline (Campbell and Laherrere 1998; Deffeyes 2001; Laherrere 2003). Once peak oil occurs, then the historic patterns of world oil demand and price cycles will cease.

A notice in the report says, "The findings of this report are not to be construed as an official Department of the Army position unless so designated by other authorized documents." However, as AF notes, other U.S. Army planning documents seem to share the concern about energy supply. And as USA TODAY reports:

Spurred by a 57% increase in fuel costs, the Pentagon is speeding up its efforts to save energy and develop new sources of power. ...All military bases and facilities have been ordered to cut energy use by 2% per year and pursue alternative energy sources, such as solar and wind.

The report only surveys energy sources, and does not cover efficiency or conservation. Nonetheless, the report notes that energy efficiency is "the cheapest, fastest, cleanest source of new energy." (p.58). In other publications, the authors do cover energy efficiency in detail, for example in A Candidate Army Energy and Water Management Strategy (118 pages, PDF &ndash 2mb).

The fact that the document does not seem to be online is puzzling. Searching with Google yielded no results. According to a note on page 4 of the report, the report should be available at http://www.cecer.army.mil/, a URL which seems to be obsolete or inaccessible.

I'm more sanguine about the role of the military than AF. Within the military and intelligence communities, there seems to be a lack of enthusiasm for unproductive resource wars. See the talks by Ex-CIA directors James R. Schlesinger and James Woolsey as well as the work of Gal Luft at the Institute for the Analysis of Global Security (IAGS).

Is the unlikely alliance described in the following article more widely possible?

You wouldn't have thought it possible: a former director of the Central Intelligence Agency drawing a standing ovation from a room full of left-leaning environmentalists right here in Eugene.

But that's exactly what happened at the University of Oregon's Public Interest Environmental Law Conference Saturday afternoon as R. James Woolsey - the nation's chief "spook" under President Bill Clinton from 1993-1995 - spoke passionately about the need to reduce America's dependence on foreign oil.

"There is a moral dimension to this," Woolsey said. "We should be good custodians of the Earth.

And if that means creating an unlikely alliance between national security hawks, American farmers, Christian evangelicals, liberal do-gooders and tree-hugging environmentalists, Woolsey said, that's just fine with him.

"All these groups are starting to come around on this set of issues," he said...

"Speaker inspires no-oil thinking" in the Eugene Register Guard, March 5, 2006.