Project Energy: Our Oil Addiction

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Industry began to develop when man found coal. And the society we know today developed when we found oil.

Economical, accessible and seemingly endless – oil. But, it is not endless, and it now appears the unthinkable is happening. We are beginning to run out of conventional oil.

The United States was once the largest exporter of oil to the rest of the world. It is now the world's largest importer.

"Exxon is saying the last year when we found more oil than we burned was 1987. So, the handwriting is on the wall that we are not finding it," said Kenneth Deffeyes. He is the emeritus professor of geosciences at Princeton, a former Shell oil geologist, and author of two books in a growing list on the subject of peak oil.

Oil production follows a curve. In more than 150 years, it has grown to where petroleum geologists say is the halfway point – the peak.

But we demand oil in greater quantities than we can produce. And demand will continue rising with an aggressively growing population, and the burgeoning industries of China and India. When demand for oil increases as supplies decrease, the serious trouble begins.

"I come out with the strong conclusion that the oil fields we have already found contain 94 percent of all the oil we are ever going to find," Deffeyes said.

According to a report commissioned by the Department of Energy, the peaking of conventional oil "… will cause protracted economic hardships in the United States and the world. It is a problem unlike any yet faced by a modern industrial society."

"Some say that by 2020 we'll have used half the world's oil. Some say we already have ... ," according to a recent Chevron ad.

One oil company, British Petroleum, has even moved to change its name. BP now means, Beyond Petroleum.

"We might have already passed peak oil," said Matthew Simmons. Simmons is the president of the world's largest energy banking firm.

He says the growing demand in the face of diminishing supplies is really the problem.

"We have a world that's headed towards a need of about 120 million barrels a day in 2020,” said Simmons, “And by 2020, if we're on top of peak oil today, our oil supply could easily be only 60-65-70 million barrels a day."

And Simmons says because of depletion, in the next five years, a barrel of oil will cost $180 — three times what it is now.

We sat down with a group of Minnesotans — Betty Albitz, Chad Amon, Stefanie Igtanloc and Al Alexander — to get their thoughts on what happens in a world of less and more expensive oil.

“Tell me how your life changes, Betty, when gas costs $10 a gallon,” asked WCCO-TV anchor Don Shelby.

“Probably car pool, try to get more people in a car, that sort of thing,” said Albitz. “You just try being more efficient with the energy you're going to burn.”

“I think we reduce the uses of the vehicles. You take my case, I have an SUV, my wife does not. We'd probably find a way to use my car less,” said Alexander.

“But it upsets our reality,” Alexander continued, “Our reality is, until you go to the pump and there's no gas, you won't get it.”

"You're going to lose your job,” Coleman said. “You're going to lose your ability to pay for heating when it's very cold in Minnesota. We're talking about catastrophic, we're talking about, and I'm not a ‘the sky is falling’ kind of guy, but we're talking about cataclysmic impacts upon the American economy."

In the halls of the U.S. Congress, the questions of diminishing supplies, alternative fuels, and sustainability have been carried traditionally by Democrats. But increasingly Republicans — often associated with big oil — are warning the party's over.

"Like kids that found the cookie jar, we just pigged out," said Rep. Roscoe Bartlett of Maryland. He is the capitol's leading voice on Peak Oil and Energy policy. He is a conservative Republican.

"Future generations are going to look back and ask themselves, how could they have done that?” said Bartlett. “This enormous wealth that they found under the ground and they just pigged it up as quickly as possible with not thought for tomorrow."

Regardless of politics, there's a growing consensus that the right thing to do is prepare for the end of oil.

Even the President of the United States has now begun to talk about the scarcity of oil, its effect on foreign policy and the security of the country.

"Keeping America competitive requires affordable energy,” said President George W. Bush in his State of the Union Address. “And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world."

"Had we listened to Jimmy Carter, 20 years ago, and taken his advice and started working on conservation, working on alternatives, we'd be in great shape right now. We didn't listen," Deffeyes said.

"My hope is that every person who lives in Minnesota will take on himself or herself a direct responsibility,” said former U.S. President Jimmy Carter.

"The American people have been enticed, through false propaganda and accepting extremely inefficient vehicles to propel them from one place to another,” Carter said. “And it’s up to the government, first of all, which has defaulted in my opinion on that responsibility, and the second responsibility is for the people of Minnesota to say, I'll do it myself, and be proud of it."

“Well it becomes overwhelming in terms of, what can one person do,” Amon said.

“I hope I as myself will try to make more decisions,” said Igtanloc, “but I think to get the people en masse, it's going to take the government.”

“But it all comes back to money,” said Alexander, “I mean, you know what I mean, that's not a moral decision, that's an economic decision. What does that say about us as a country?”

“But I think this country,” said Albitz, “it is the free enterprise system. The masses will rise given the education, given the opportunities, given the creativity of the human mind for alternatives. I'm still remaining optimistic.”

Oil supplies from Russia will fall short of expectations over the next four years, adding to the supply concerns that have driven world oil prices to record highs this week.

Claude Mandil, executive director of the International Energy Agency, told the Financial Times that expectations for growth in Russian oil supply were too optimistic and that the Organisation of the Petroleum Exporting Countries would have to make up the difference.

He said: “To 2010 OPEC would have to fill a higher gap. I am not sure that non-Opec supply will be that high and I mainly have in mind Russia but also some other non-Opec suppliers.”

He would not say by how much the IEA would reduce its Russian growth forecasts, but other analysts have slashed their expectations by as much as half.

Russia is the world’s second largest oil producer. Until a few years ago, it enjoyed double-digit supply growth, which has been critical in helping meet the recent surge in Chinese demand.

The caution over its future growth comes as oil prices have surged because of fears of a US attack on Iran and ongoing supply cuts in Nigeria and Iraq.

IPE Brent crude futures hit a record $69.70 a barrel yesterday, before slipping to $68.88 in mid-afternoon trading in London. The late sell-off extended to Nymex West Texas Intermediate, which fell from its intra-day peak of $69.45 to $68.55.

Oil and its by-products are among several commodities that are booming. Metal prices also struck record highs with benchmark copper prices in London reaching $6,005 a tonne. Zinc prices hit $2,980 a tonne, double the level in October. Gold hit a 25-year high of $604 a troy ounce, and silver reached a 23-year high of $13.01 a troy ounce.

The energy watchdog of the world’s biggest economies has called on the European Commission to set maximum energy consumption standards for electrical equipment such as light bulbs and washing machines.

Europe needed to do more to curb its oil and gas demand in light of increasing fears over supply, Claude Mandil, executive director of the International Energy Agency, said.

Continuing civil strife in Iraq and Nigeria has already seriously reduced both countries’ oil exports, and the threat of US military action against Iran, the world’s fourth largest oil producer, has driven prices to new records.

Mr Mandil also raised fresh concerns about the reliability of supply from Russia, the world’s second biggest oil producer, saying it could fall short of IEA expectations over the next four years.

“One of the most important ways to increase energy security is through energy efficiency and the market signals for that are not big enough,” Mr Mandil said.

“I don’t think goals and targets in shares of renewables or in decreasing energy consumption is a useful tool. We think the [European] Commission could be bolder on norms and standards. It’s within its responsibility.”

He calculated that such a move could save by 2030 as much as 30 per cent of the amount of energy the world needs for everything but transport.

On Russia, Mr Mandil acknowledged that IEA expectations for Russian oil supplies to 2010 had been overly optimistic. The Organisation of the Petroleum Exporting Countries, the cartel that supplies 40 per cent of the world’s oil, would have to fill a gap to avert a significant increase in oil prices, which were already “too high”, he said.

Analysts have in the past year reduced their growth estimates by half. Russia was likely to supply at best 180,000 barrels of production growth this year, compared with the IEA estimate that of Russian growth of more than 300,000 barrels a day, one senior supply analyst said.

The US Department of Energy on Tuesday forecast even lower growth rates for Russia, predicting increased export taxes would hinder investment.

“Growth is not high on Moscow’s agenda,” the senior analyst said, adding that Russia’s policies were damping production growth of private Russian companies.

Mr Mandil said that although Russia had historically been “a very reliable natural gas supplier, we are now looking more closely at it because of the recent problems with its exports to the Ukraine and, to a lesser extent, because of what happened with Yukos”.

Vladimir Putin, Russia’s president, has in the past two years consolidated his power over Russia’s biggest energy companies, including Yukos, and limited the participation of foreign companies to minority stakes in Russian natural resources. In January, Russia suspended gas supplies to Ukraine over a pricing dispute, disrupting European supplies.

Mr Mandil said the relationship between the IEA and Moscow was still good, but said: “I would like to have better figures and conversations with our Russian colleagues. When you are concerned and when you do not have enough information to alleviate your concerns, your concerns just increase.”

[The US is covertly trying harder and harder to materialize the civil war that it really wants. Yes, this is a nasty development. No, it does not mean that Iraq is in a full-fledged civil war as yet. Highly-charged headlines do not a civil war make. This “cookie-cutter” balkanization plan is familiar to any journalist, politician, or military figure over the age of 35. While US covert operations may be fomenting some of these really nasty attacks, we have seen little evidence yet (and I must emphasize “yet”) that the overall US plan is actually succeeding. Time will tell. For now, all we see is continuing mayhem that the western press continues to define as the “brink” of civil war. They’ve been doing that since January and we have yet to see that promise fulfilled.

In the meantime, the US continues to build massive and permanent military bases and has just started construction of the largest and most secure embassy complex outside of the US. All of that to watch over about 95 billion barrels of crude that are in the ground in the Kurdish north and the Shia southeast. – MCR]

Snipers held rooftop positions as masked Sunni Arab insurgents said they were gearing up for another open street battle with pro-government Shi'ite militiamen in Baghdad's Adhamiya district on Tuesday.

The Arab Sunni stronghold is still feeling ripples from overnight clashes on Monday that appeared to be the closest yet to all-out sectarian fighting.

It's a reality that has Washington scrambling to avert civil war as Iraqi politicians struggle to form a government four months after parliamentary elections.

A U.S. military spokesman said 50 insurgents attacked Iraqi forces in the middle of the night in a seven-hour battle that killed five rebels and wounded an Iraqi soldier.

Fighting was so fierce that U.S. reinforcements were brought in to the northern district, home to some of Iraq's most hardcore Sunni guerrillas and the Abu Hanifa mosque, near where Saddam Hussein was last seen in public before going into hiding.

"There are six people among our dead and wounded. Just half an hour ago a sniper killed Ali," said Mohammad, a 28-year-old Adhamiya resident, of his friend.

While the February bombing of a Shi'ite shrine pushed Iraq to the edge of civil war and left hundreds of bodies with bullet holes and torture marks on the streets, the scenario in Adhamiya is more alarming, despite fewer casualties.

It appeared to be the first example of a large-scale, open sectarian street battle in the capital, if not all of Iraq.

The boldness of the attack was a stark reminder of the security nightmare that will challenge the new government, which will face a Sunni insurgency that has killed many thousands of Shi'ite security forces and civilians.

"Today at noon a group of army soldiers came near the Abu Hanifa mosque and a sniper went on top of the roof. We managed to kill him with a grenade. I destroyed three of their vehicles with roadside bombs," said another rebel.

Insurgents setting up barricades said they saw Shi'ite fighters calling themselves The Army of Haidar closing in on the Abu Hanifa mosque from three directions.

"We expect them to come back again," said a man who only identified himself as Abu Bakr and said he was a former army officer under Saddam.

His description of the events of Monday night were even more dramatic than the U.S. military account.

"We saw about 100 to 150 men show up in cars. Some were wearing military uniforms and others were in civilian clothes," he said, as five gunmen stood guard over one of the main roads leading into Adhamiya.

Sunni leaders have accused the Shi'ite-led government of sanctioning militia death squads, a charge it denies.

"What happened in Adhamiya is an evil act by an armed militia backed by security and government operatives," Dhafer al-Ani, a member of the biggest Sunni Alliance, told a news conference.

As Abu Bakr and his men geared up for a new fight, the Sunni town of Ramadi, 110 km (68 miles) west of Baghdad, was recovering from the latest rebel assault.

The U.S. military said marines repelled insurgent attacks at several locations in central Ramadi on Monday, including the local government centre, which often comes under fire.

The multiple suicide car bombs, mortars, rocket-propelled grenades and heavy machine guns appeared to be closely coordinated, said the military.

On Tuesday, residents said they kept their children home because insurgents ordered schools closed. Streets were mostly empty.

Washington hopes training will improve the performance of Iraqi forces and enable U.S. troops to start heading home.

But as the confusing Adhamiya fighting illustrated, it's hard to tell who is wearing Iraqi military uniforms, complicating the task of stabilising the country.