[R-G] [BillTottenWeblog] Final warning

[Bill Totten]

New Scientist via Acquire Media NewsEdge

by Ian Sample

www.tmcnet.com (June 27 2008)


HOWLS of protest have been echoing round the globe as the price of oil
punches through record highs with every passing week. In the UK, last
month, hundreds of truckers descended on London to demand that planned
fuel tax rises be scrapped. In continental Europe, where police clashed
violently with truckers, two people died during the protests. Fishermen
and farmers blockaded ports and depots in protest against the rocketing
cost of diesel. Similar scenes played out across South America and Asia.

In the US, the world's thirstiest oil consumer, gasoline reached an
all-time high of $4 per gallon, forcing the administration to lean on
domestic producers and consider suing foreign oil exporters for
allegedly rigging the market. When President Bush implored Saudi Arabia,
which controls the lion's share of the world's proven reserves, to pump
more from its wells, the Saudis came up with only a token increase.

The situation is not about to improve. Bankers Goldman Sachs and Morgan
Stanley have both suggested that the crude oil price could rise from the
high of $139 a barrel (as New Scientist went to press) to $200 or more,
while the financial speculator George Soros predicts that rising oil
prices could send the US economy into recession.

Expensive fuel at the pumps is just the start. These battles over the
price of oil could be the harbinger of something even scarier. There is
a growing realisation that we are teetering on the edge of an economic
catastrophe which could be triggered next time there is a glitch in the
world's oil supply.

A number of converging forces are making such an event more likely than
ever before. First, there is the spectacular rise in global oil
consumption, which, according to the International Energy Agency (IEA)
now stands at 87 million barrels of crude (about ten billion litres) a
day. Most geologists now accept we have reached, or will imminently
reach, peak oil. Some fields in the US and the North Sea have been
pumped dry and production is becoming increasingly concentrated within
fewer countries. Add a boost from speculators betting that things will
get even worse, chicanery by the Organisation of Petroleum Exporting
Countries (OPEC) cartel which over the past two years has added Angola
and Ecuador to its ranks to mask the decline in production of its
existing members, and it's not hard to see why prices have been forced
ever upwards. But price conceals the much more complex mess we're in.

In the past, it has usually been possible to ride out any disruption to
world oil flows - whether from accidents or hostile acts - by pumping
more oil from the ground. That spare capacity has now all but vanished,
as oil producers cash in on soaring prices by extracting as much of the
stuff as they can. "There is absolutely no slack in the system any
more", says Gal Luft, executive director of the Institute for the
Analysis of Global Security, a Washington DC-based think tank
specialising in energy security {1}. It is this lack of wriggle-room
that has brought us to the brink.

In the days when oil producers had more leeway, they could make up for a
disruption somewhere in the system by quickly raising production by
around three million barrels a day, says Nick Butler, head of the
Cambridge Centre for Energy Studies, part of the University of
Cambridge's Judge Business School. That crucial reserve capacity has now
fallen below the daily output of some producers - meaning that if the
taps were turned off in any one of a number of unstable oil-supplying
nations, such as Nigeria, Iraq, Iran or Angola, the impact would be felt
almost immediately.

This has left the oil market so fragile that a few well-placed
explosives, an energy-sapping cold winter or an unusually intense
hurricane season could send shock waves across the globe. The potential
consequences are so serious that governments are drawing up emergency
plans to cope should the worst happen. According to one analyst who took
part in a simulation of just such a crisis, the situation most experts
fear is what they call a "psychological avalanche".

Here's what happens. A small, distant country one day finds it can no
longer import enough oil because of a spike in prices or problems with
local supply. The news media whip this up into a story suggesting an oil
shock is on the way, and the resulting panic buying by the public
degenerates into a global grab for oil.

Most industrialised countries keep an emergency reserve as a first line
of defence, but in the face of worldwide panic buying this may not be
enough. Countries in which the oil runs out face transport meltdown,
wreaking havoc with international trade and domestic necessities such as
food distribution, emergency services and daily commerce. Without oil
everything stops.

The roots of our oil addiction can be traced back to the end of the 19th
century, when petroleum began to be pumped from wells across America. It
wasn't long before it become obvious what a great transport fuel it
could provide. Oil-based fuels paved the way for intensive farming and
extensive road networks; they drove the influx of populations into
cities, drove growth in shipping and eventually made mass air travel
possible. "Oil has shaped our civilisation. Without crude oil you'd have
no cars, no shipping, no planes", says Gideon Samid, head of the
Innovation Appraisal Group (IAG) at Case Western Reserve University in
Ohio {2}.

And it's not just about fuels. A giant chemical industry relies on oil
as its feedstock, and without it many of the products we now take for
granted would vanish. "You'd see no plastics, no bags, no toys, no cases
on TVs, computers or radios. It's absolutely everywhere", says Samid.

"Much of the economic expansion and growth of the human population in
the 20th century is directly tied to the availability of large amounts
of cheap oil", says Cutler Cleveland {3}, director of the Center for
Energy and Environmental Studies at Boston University. "There isn't a
single good or service consumed on the planet, except in rural
economies, that doesn't have oil embedded in it. Oil is the lifeblood of
the global economy."

The secret of oil's success is its portability and extraordinarily high
energy density. One barrel of oil contains the energy equivalent of 46
US gallons of gasoline; burn it and it will release more than six
billion joules of heat energy, equivalent to the amount of energy
expended by five agricultural labourers working twelve-hour days
non-stop for a year.

The vast majority of oil is consumed by transport. In the US, that
sector accounts for nearly seventy per cent of the 20.7 million barrels
the country gets through each day. .

More than half of the world's oil comes from seven countries, the
leading supplier being Saudi Arabia, which produces more than ten
million barrels a day. Then come Russia, the US, Iran, China, Mexico and
Canada. Twenty years ago, there were fifteen oilfields able to supply
one million barrels a day. Now, there are only four. The largest is the
Ghawar field in Saudi Arabia.

The IEA, which advises 27 countries on oil emergencies, requires its
members to hold at least ninety days' worth of fuel, which can be pooled
and released onto the market if a crisis looms. The system last swung
into action in 2005 when hurricane Katrina caused the shutdown of more
than 23 per cent of the US's oil production capacity. A few days after
Katrina struck, the IEA ordered the release of two million barrels a day
from reserve stocks for a month, the first time reserves had been
released since the Gulf war in 1991.

About half the world's oil is distributed by tankers mainly plying a
handful of key routes across the oceans. The rest goes through an
extensive network of pipelines that can carry different grades of crude
and synthetic compounds, such as lubricants. The bewildering complex of
pipelines - extending 90,000 kilometres in the US alone - crosses
continents and dips under oceans.

The pipelines are often above ground and vulnerable to accidental damage
or attacks by saboteurs. When working, however, they provide an
extremely efficient way of transporting oil. A pipeline that pumps a
relatively modest 150,000 barrels per day delivers the equivalent of 750
oil tanker truck loads or one delivery every two minutes, day and night.
Even if a pipeline is damaged, it can usually be quickly repaired.
Valves at intervals along the pipe can isolate the leak while the
damaged section is replaced.

Disruption can still be costly. A report in 2005 by a US House of
Representatives subcommittee on terrorism reported that sabotage to oil
pipelines in Iraq had cost the country more than $10 billion in lost
revenues, even though protection had been a high priority for the
coalition troops since they invaded two years before. The report
suggested that groups hostile to the US and its allies were becoming
increasingly expert at mounting these attacks.


Choke points

Even outside a conflict zone, accidents can cause serious disruption.
Last year, the IEA was on standby to release reserves after an explosion
in Minnesota shut down part of the 5000-kilometre Enbridge pipeline,
which pumps 1.9 million barrels of crude a day from Canada to the US
Midwest. This single incident halted one-fifth of US oil imports for days.

Oil deliveries by sea are vulnerable too. A fleet of 4000 tankers plying
six main routes delivers more than 43 million barrels of oil every day.
Many of these routes pass through narrow "choke points", and if any of
these were to become impassable, even temporarily, the effect on oil
supplies could be dramatic.

For instance, more than sixteen million barrels of oil a day are shipped
through the Strait of Hormuz, at the mouth of the Persian Gulf, taking
oil from Saudi Arabia, Iran, Iraq, Kuwait, Qatar and the United Arab
Emirates to the US, western Europe and Asia. At its narrowest point, the
strait is only 33 kilometres wide. If necessary, some of Saudi Arabia's
exports could be diverted through the 1200-kilometre East-West pipeline
to the Red Sea, but its maximum capacity is only five million barrels a
day, half of which is already taken up.

Between 1984 and 1987, during the Iran-Iraq war, both countries attacked
tankers in the Strait of Hormuz, causing shipping to drop by 25 per
cent. In 2003, the Bush administration claimed it had prevented further
attacks on shipping in the strait.

Another pinch point occurs in the Strait of Malacca, which narrows to
just 2.7 kilometres between Sumatra and Singapore. Tankers from the
Persian Gulf and west Africa transport some fifteen million barrels a
day through the strait en route to Japan, China and other Pacific
destinations. A report by Luft claims that some tankers have been
hijacked here by would-be terrorists whose initial aim has been simply
to learn how to operate them. In 2003 a small chemical tanker called
Dewi Madrim was taken over by ten armed men, who sailed it through the
strait before leaving with equipment and technical documents.

One scenario being suggested is that hijackers might commandeer a liquid
natural gas tanker plying one of these shipping routes, load it with
explosives and use it to ram an oil tanker. If this floating bomb
produced a burning oil slick, it could render the passage impassable for
months, tipping the global economy into crisis as alternative routes
would fail to make up the lost supplies.

Another key element in the global oil infrastructure is Abqaiq, an
enormous processing facility in Saudi Arabia, which removes sulphur from
two-thirds of the country's crude. The CIA estimates that seven months
after a large-scale attack, output would still be only forty per cent of
its full capacity.

More than half the oil from Abqaiq is pumped to the largest offshore oil
terminal in the world, Ras Tanura on the Persian Gulf, which handles
one-tenth of the world's oil. This makes it a prime target for attack,
and the site is as heavily defended as a military base. "If you have a
facility like this and a plane crashed into it, or terrorists get in and
somehow succeed in blowing it up, then you have a very, very significant
disruption on your hands. That is what analysts see as a doomsday
scenario", Luft says. Reuters reported that one planned attack on the
terminal was thwarted in 2006. Saudi oil production is particularly
vulnerable because it is concentrated in a few massive production and
distribution sites. "If one or two of these facilities goes down, then
the entire system goes down", says Luft.

So what would the impact be if oil supplies choked? In 2005, a group of
current and former US government and national security officials were
asked to address this in a live role-play exercise. Playing the part of
the national security adviser was Robert Gates, who the following year
became Secretary of Defense. The scenarios that unfolded were developed
with officials from the Shell oil company in the Netherlands, a former
US presidential counter-terrorism adviser and industry analysts.

The simulation kicked off with an upsurge of political violence in
Nigeria, the fifth-largest supplier of oil to the US. In the ensuing
turmoil 600,000 barrels of oil production a day were lost from the Niger
delta. The violence coincided with the start of a cold winter in the
northern hemisphere, which increased demand by 700,000 barrels a day.
Together, these events boosted the price of a barrel of oil from $58 to
$82; a proportional rise today would push the price beyond $195.

Events began to gather pace when, a month later, the simulation threw in
an attack on the Haradh natural-gas processing plant in Saudi Arabia,
which forced the country to cut 250,000 barrels per day from its exports
- equivalent to the oil consumed every day in Switzerland - to meet
domestic needs. Next, news arrived of an attempt to ram a hijacked
supertanker into another vessel moored at a jetty at Ras Tanura. This
was closely followed by a similar attack at the oil port of Valdez in
Alaska, as well as a ground attack which set fuel depots alight. With
the world oil shortfall now at 3.4 million barrels per day, the price
per barrel had shot up to $123. Against the recent peak price of $139,
that rise would take the cost per barrel to $295.

The turmoil leads to an aggressive crackdown on anti-western groups and
their sympathisers, which temporarily quells further attacks. Then, six
months into the simulation, a terrorist campaign is launched against
foreign workers in Saudi Arabia, killing 200 and wounding 250 within 48
hours. Evacuation of foreign workers follows.

Though oil production continues unchecked, this loss of expertise leaves
Saudi Arabia unable to meet future demand and with no spare capacity.
Fears that this could lead to shortages in the future bring speculators
into the market, and the price per barrel rises to $161. At the end of
the simulation, global production has fallen by 3.5 million barrels a
day, or four per cent of world oil supplies. One of the participants,
Jim Woolsey, a former head of the CIA, described the scenarios as
"relatively mild compared to what is possible", yet this proved enough
to almost triple the price of a barrel of crude.

The key conclusion being drawn from this scenario is how reliant the
global oil market is on Saudi Arabia's ability to ramp up production on
demand. If this extra oil is not available, the price rockets. Saudi
Arabia's recent reluctance to increase production and the ensuing price
rises in today's real-life oil market amply bear out this prediction.

So where does this leave us at a time when global oil production is
approaching the point when it stops growing and starts to decline? Most
industry experts, including geoscientists and economists, who were
polled by Samid in 2007 said that peak production will occur by 2010.
This contrasted with a similar survey conducted two years earlier, in
which respondents were split, with many of the economists opting for a
later date. "Now, a real consensus is emerging", says Samid.

This tells us that we will have to start making serious attempts to wean
ourselves off oil, and fast. It will be no easy task. "It's hardly
conceivable that the world could function without oil", says Didier
Houssin, director of oil markets and emergency preparedness at the IEA.

Finding a replacement fuel for transport is the biggest challenge. So
far all the alternatives have hit the skids. For example, hydrogen,
which could potentially replace oil as a green fuel if made using
renewable sources of energy, has storage and distribution problems.
While biofuels, which could be an easier replacement for fossil fuels,
require feedstocks that compete with food crops for water and
agricultural land. "To get these alternatives close to what oil can do,
you have to invest a lot of money", says Cleveland, something most
governments and energy companies have done reluctantly, and at
pathetically low levels. "These aren't insurmountable problems, but they
suggest the transition has some formidable challenges", he adds. One way
or another oil will become more scarce, even more costly and will always
have the disadvantage of generating carbon dioxide when it's burned.
However hard it may be, the sooner we make the break, the better.

Links:

{1} http://www.iags.org/galluft.htm

{2} http://www.peakoilwhen.org/

{3} http://www.bu.edu/cees/people/faculty/cutler/index.html

_____

Ian Sample is science correspondent for The Guardian newspaper in London

Copyright (c) 2008 Reed Business Information - UK. All Rights Reserved.

Copyright 2008 Technology Marketing Corporation (TMC) - All rights reserved

http://www.tmcnet.com/usubmit/2008/06/27/3521248.htm


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