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[Bill Totten]

The Era Of Cheap Oil Is Over

by Michael T Klare

TomDispatch.com (June 12 2009)


Every summer, the Energy Information Administration (EIA) of the US
Department of Energy issues its International Energy Outlook (IEO) - a
jam-packed compendium of data and analysis on the evolving world energy
equation. For those with the background to interpret its key statistical
findings, the release of the IEO can provide a unique opportunity to gauge
important shifts in global energy trends, much as reports of routine
Communist Party functions in the party journal Pravda once provided
America's Kremlin watchers with insights into changes in the Soviet
Union's top leadership circle.

As it happens, the recent release of the 2009 IEO has provided energy
watchers with a feast of significant revelations. By far the most
significant disclosure: the IEO predicts a sharp drop in projected future
world oil output (compared to previous expectations) and a corresponding
increase in reliance on what are called "unconventional fuels" - oil
sands, ultra-deep oil, shale oil, and biofuels.

So here's the headline for you: For the first time, the well-respected
Energy Information Administration appears to be joining with those experts
who have long argued that the era of cheap and plentiful oil is drawing to
a close. Almost as notable, when it comes to news, the 2009 report
highlights Asia's insatiable demand for energy and suggests that China is
moving ever closer to the point at which it will overtake the United
States as the world's number one energy consumer. Clearly, a new era of
cutthroat energy competition is upon us.


Peak Oil Becomes the New Norm

As recently as 2007, the IEO projected that the global production of
conventional oil (the stuff that comes gushing out of the ground in liquid
form) would reach 107.2 million barrels per day in 2030, a substantial
increase from the 81.5 million barrels produced in 2006. Now, in 2009, the
latest edition of the report has grimly dropped that projected 2030 figure
to just 93.1 million barrels per day - in future-output terms, an
eye-popping decline of 14.1 million expected barrels per day.

Even when you add in the 2009 report's projection of a larger increase
than once expected in the output of unconventional fuels, you still end up
with a net projected decline of 11.1 million barrels per day in the global
supply of liquid fuels (when compared to the IEO's soaring 2007 projected
figures). What does this decline signify - other than growing pessimism by
energy experts when it comes to the international supply of petroleum
liquids?

Very simply, it indicates that the usually optimistic analysts at the
Department of Energy now believe global fuel supplies will simply not be
able to keep pace with rising world energy demands. For years now,
assorted petroleum geologists and other energy types have been warning
that world oil output is approaching a maximum sustainable daily level - a
peak - and will subsequently go into decline, possibly producing global
economic chaos. Whatever the timing of the arrival of peak oil's actual
peak, there is growing agreement that we have, at last, made it into
peak-oil territory, if not yet to the moment of irreversible decline.

Until recently, Energy Information Administration officials scoffed at the
notion that a peak in global oil output was imminent or that we should
anticipate a contraction in the future availability of petroleum any time
soon. "[We] expect conventional oil to peak closer to the middle than to
the beginning of the 21st century", the 2004 IEO report stated
emphatically.

Consistent with this view, the EIA reported one year later that global
production would reach a staggering 122.2 million barrels per day in 2025,
more than fifty percent above the 2002 level of 80.0 million barrels per
day. This was about as close to an explicit rejection of peak oil that you
could get from the EIA's experts.


Where Did All the Oil Go?

Now, let's turn back to the 2009 edition. In 2025, according to this new
report, world liquids output, conventional and unconventional, will reach
only a relatively dismal 101.1 million barrels per day. Worse yet,
conventional oil output will be just 89.6 million barrels per day. In EIA
terms, this is pure gloom and doom, about as deeply pessimistic when it
comes to the world's future oil output capacity as you're likely to get.

The agency's experts claim, however, that this will not prove quite the
challenge it might seem, because they have also revised downward their
projections of future energy demand. Back in 2005, they were projecting
world oil consumption in 2025 at 119.2 million barrels per day, just below
anticipated output at that time. This year - and we should all
theoretically breathe a deep sigh of relief - the report projects that
2025 figure at only 101.1 million barrels per day, conveniently just what
the world is expected to produce at that time. If this actually proves the
case, then oil prices will presumably remain within a manageable range.

In fact, however, the consumption part of this equation seems like the
less reliable calculation, especially if economic growth continues at
anything like its recent pace in China and India. Indeed, all evidence
suggests that growth in these countries will resume its pre-crisis pace by
the end of 2009 or early 2010. Under those circumstances, global oil
demand will eventually outpace supply, driving up prices again and
threatening recurring and potentially disastrous economic disorders -
possibly on the scale of the present global economic meltdown.

To have the slightest chance of averting such disasters means seeing a
sharp rise in unconventional fuel output. Such fuels include Canadian oil
sands, Venezuelan extra-heavy oil, deep-offshore oil, Arctic oil, shale
oil, liquids derived from coal (coal-to-liquids or CTL), and biofuels. At
present, these cumulatively constitute only about four percent of the
world's liquid fuel supply but are expected to reach nearly thirteen
percent by 2030. All told, according to estimates in the new IEO report,
unconventional liquid production will reach an estimated 13.4 million
barrels per day in 2030, up from a projected 9.7 million barrels in the
2008 edition.

But for an expansion on this scale to occur, whole new industries will
have to be created to manufacture such fuels at a cost of several trillion
dollars. This undertaking, in turn, is provoking a wide-ranging debate
over the environmental consequences of producing such fuels.

For example, any significant increase in biofuels use - assuming such
fuels were produced by chemical means rather than, as now, by cooking -
could substantially reduce emissions of carbon dioxide and other
greenhouse gases, actually slowing the tempo of future climate change. On
the other hand, any increase in the production of Canadian oil sands,
Venezuelan extra-heavy oil, and Rocky Mountain shale oil will entail
energy-intensive activities at staggering levels, sure to emit vast
amounts of carbon dioxide, which might more than cancel out any gains from
the biofuels.


In addition, increased biofuels production risks the diversion of vast
tracts of arable land from the crucial cultivation of basic food staples
to the manufacture of transportation fuel. If, as is likely, oil prices
continue to rise, expect it to be ever more attractive for farmers to grow
more corn and other crops for eventual conversion to transportation fuels,
which means rises in food costs that could price basics out of the range
of the very poor, while stretching working families to the limit. As in
May and June of 2008, when food riots spread across the planet in response
to high food prices - caused, in part, by the diversion of vast amounts of
corn acreage to biofuel production - this could well lead to mass unrest
and mass starvation.


A Heavy Energy Footprint on the Planet

The geopolitical implications of this transformation could well be
striking. Among other developments, the global clout of Canada, Venezuela,
and Brazil - all key producers of unconventional fuels - is bound to be
strengthened.

Canada is becoming increasingly important as the world's leading producer
of oil sands, or bitumen - a thick, gooey, viscous material that must be
dug out of the ground and treated in various energy-intensive ways before
it can be converted into synthetic petroleum fuel (synfuel). According to
the IEO report, oil sands production, now at 1.3 million barrels a day and
barely profitable, could hit the 4.4 million barrel mark (or even,
according to the most optimistic scenarios, 6.5 million barrels) by 2030.

Given the IEA's new projections, this would represent an extraordinary
addition to global energy supplies just when key sources of conventional
oil in places like Mexico and the North Sea are expected to suffer severe
declines. The extraction of oil sands, however, could prove a pollution
disaster of the first order. For one thing, remarkable infusions of
old-style energy are needed to extract this new energy, huge forest tracts
would have to be cleared, and vast quantities of water used for the steam
necessary to dislodge the buried goo (just as the equivalent of "peak
water" may be arriving).

What this means is that the accelerated production of oil sands is sure to
be linked to environmental despoliation, pollution, and global warming.
There is considerable doubt that Canadian officials and the general public
will, in the end, be willing to pay the economic and environmental price
involved. In other words, whatever the IEA may project now, no one can
know whether synfuels will really be available in the necessary quantities
fifteen or twenty years down the road.

Venezuela has long been an important source of crude oil for the United
States, generating much of the revenue used by President Hugo Chavez to
sustain his social experiments at home and an ambitious anti-American
political agenda abroad. In the coming years, however, its production of
conventional petroleum is expected to fall, leaving the country
increasingly reliant on the exploitation of large deposits of bitumen in
the eastern Orinoco River basin. Just to develop these "extra-heavy oil"
deposits will require significant financial and energy investments and, as
with Canadian oil sands, the environmental impact could be devastating.
Nevertheless, successful development of these deposits could prove an
economic bonanza for Venezuela.

The big winner in these grim energy sweepstakes, however, is likely to be
Brazil. Already a major producer of ethanol, it is expected to see a huge
increase in unconventional oil output once its new ultra-deep fields in
the "subsalt" Campos and Santos basins come on-line. These are massive
offshore oil deposits buried beneath thick layers of salt some 100 miles
off the coast of Rio de Janeiro and several miles beneath the ocean's
surface.

When the substantial technical challenges to exploiting these undersea
fields are overcome, Brazil's output could soar by as much as three
million barrels per day. By 2030, Brazil should be a major player in the
world energy equation, having succeeded Venezuela as South America's
leading petroleum producer.


New Powers, New Problems

The IEO report hints at other geopolitical changes occurring in the global
energy landscape, especially an expected stunning increase in the share of
the global energy supply consumed in Asia and a corresponding decline by
the United States, Japan, and other "First World" powers. In 1990, the
developing nations of Asia and the Middle East accounted for only
seventeen of world energy consumption; by 2030, that number, the report
suggests, should reach 41%, matching that of the major First World powers.

All recent editions of the report have predicted that China would
eventually overtake the United States as number one energy consumer.
What's notable is how quickly the 2009 edition expects that to happen. The
2006 report had China assuming the leadership position in a 2026 to 2030
timeframe; in 2007, it was 2021 to 2024; in 2008, it was 2016 to 2020.
This year, the EIA is projecting that China will overtake the United
States between 2010 and 2014.

It's easy enough to overlook these shifting estimates, since the reports
don't emphasize how they have changed from year to year. What they
suggest, however, is that the United States will face ever fiercer
competition from China in the global struggle to secure adequate supplies
of energy to meet national needs.

Given what we have learned about the dwindling prospects for adequate
future oil supplies, we are sure to face increased geopolitical
competition and strife between the two countries in those few areas that
are capable of producing additional quantities of oil (and undoubtedly
genuine desperation among many other countries with far less resources and
power).

And much else follows: As the world's leading energy consumer, Beijing
will undoubtedly play a far more critical role in setting international
energy policies and prices, undercutting the pivotal role long played by
Washington. It is not hard to imagine, then, that major oil producers in
the Middle East and Africa will see it as in their interest to deepen
political and economic ties with China at the expense of the United
States. China can also be expected to maintain close ties with oil
providers like Iran and Sudan, no matter how this clashes with American
foreign policy objectives.

At first glance, the International Energy Outlook for 2009 hardly looks
different from previous editions: a tedious compendium of tables and text
on global energy trends. Looked at another way, however, it trumpets the
headlines of the future - and their news is not comforting.

The global energy equation is changing rapidly, and with it is likely to
come great power competition, economic peril, rising starvation, growing
unrest, environmental disaster, and shrinking energy supplies, no matter
what steps are taken. No doubt the 2010 edition of the report and those
that follow will reveal far more, but the new trends in energy on the
planet are already increasingly evident - and unsettling.

_____

Michael T Klare is the Five College Professor of Peace and World Security
Studies at Hampshire College in Amherst, Massachusetts, and the author of
Blood and Oil: The Dangers and Consequences of America's Growing
Dependence on Imported Petroleum (2004). A documentary version of that
book is available at bloodandoilmovie.com. His newest book, Rising Powers,
Shrinking Planet: The New Geopolitics of Energy (2009), was recently
published by Metropolitan Books. To listen to a TomDispatch audio
interview in which Klare discusses the future of oil in 2009 and beyond,
click here: http://tomdispatch.blogspot.com/

(c) 2009 TomDispatch.com

http://www.countercurrents.org/klare120609.htm


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