Energy Security

[Ken White]

Timely stuff indeed.

[Rick M]

During the next few days I will post information & links regarding various aspects of energy security.
I will begin with four articles by military analysts who view peak oil as a legitimate concern.
"Peak oil" refers to the point when global oil production reaches its maximum. With current global consumption having reached a thousand barrels a second at reasonably affordable rates, any constraint to the availability of cheap oil is expected to present some significant difficulties.

The following four studies may be of particular relevance to this audience:

1. excellent Armed Forces Journal article by Commander Jeffrey Eggers:
http://www.afji.com/2008/05/3434573

2. another article in the same edition (AFJ, May 08) by Maj. Daniel Davis:
http://www.afji.com/2008/05/3466428/

3. Maj. Davis did a more comprehensive study (37 pgs) in 2007:
http://www.aspo-usa.com/assets/docum..._Precipice.pdf

4. Maj. Cameron Leckie did a concise analysis in Australian Army Journal (Summer 2007, p. 21):
http://www.defence.gov.au/Army/lwsc/...book_PRESS.pdf

There are other studies which could be included but these four are concise, focused, and properly sourced.
Please speak up if anyone sees something which they feel is less than credible.

[Dayuhan]

The “peak oil” point will inevitably be reached, and the concern is legitimate. The extensive discussion of “peak oil”, however, may distract from equally legitimate and far more immediate concerns.

We all know that the easy oil has already been exploited, and that future capacity increases will require very large investments, high production costs, and extended time lags between investment and production. In theory, high oil prices should provide both the means and the incentive to support these investments. In practice, investment is far lower than it needs to be to support probable increases in demand.

National oil companies in many oil producing countries are managed according to political, not economic, rationales. In many cases political and social projects receive priority when oil revenue is allocated, and investment in oil production is often insufficient even to sustain current production levels, let alone to bring new capacity into play. In theory private investment should be able to make up the gap, but very large investment requirements, extended recovery horizons, very high levels of political and conflict risk and generally inhospitable investment climates in areas with high potential are major obstacles to private investment.

High oil prices should drive a wave of investment, but non-economic investment constraints have distorted the process and reduced investment to a level that may not be sustainable. A very high proportion of current investment in new capacity is in the GCC, which only increases the current global dependence on a single group of producers located in an area subject to very real security threats.

This investment gap actually delays the onset of the “peak oil” point, as it leaves more oil in the ground. It also creates problems of its own. I’d hazard a guess that the next great energy crisis will not be driven by an apocalyptic “peak oil” scenario where the oil simply runs out, but by a combination of increasing demand, reduced output due to insufficient investment, and political and/or conflict-related disruptions in one or more major producers. This is not as dramatic a scenario as “peak oil”, but the potential security impact could be severe and the probability of such a scenario appearing in the short to medium term is quite high.

[davidbfpo]

Energy security issues get irregular attention in the UK and most are blissfully unaware that North Sea oil is running out. Natural gas is now being imported, hence the need for storage facilities and the IPPR report recommends more investment. Use of coal on the previous scale (i.e. 1980's) for power generation is unlikely and UK coal is reportedly too "dirty" for current environmental standards.

Meantime let us place our heads and wallets carefully back in the sand.

davidbfpo

[Rick M]

Dayuhan,
I agree completely on your concerns re investment, which confirm the following point: price volatility may be worse than sustained high prices.

If high prices were sustained (prices would need to be sustained for at least a decade in order to achieve the following benefit) then more of the difficult oil would be brought on-stream, thus buying us some much-needed time to develop non-carbon alternatives.
However, a see-saw effect where the price dips regularly subvert such efforts will make investors reluctant to risk their money on something which cannot endure many consecutive months of losses.

But your final point about “an apocalyptic peak oil scenario where the oil simply runs out” makes me wonder if you share a common misconception about peak oil, which is to equate peaking with running out.

This is a very important distinction.
Some peak oil analysts argue that the peak (ie. point of maximum production/flow-rate) should coincide more or less with the half-way point. That is, production will peak when we have extracted about half of the ultimately recoverable reserves.
Personally, I see no causal link between the two, nor did Brent Fisher in his excellent study for the Institute for Defense Analyses (IDA).

Here is a review of his IDA study (2008):
http://www.energybulletin.net/node/49272

But the main point here is that peaking is not about running out, any more than the start of commercial extraction in 1858 (here in Canada, not in Titusville the following year) was about running out.

My bet is that we will have more than half the potentially extractable oil in the ground when we peak., so physical supply may not turn out to be the primary problem after all.
But the central thesis of the peak oil analysts is this: the troubles will start as we approach the apparent peak. It probably will matter little what combination of factors ‘causes’ the peak, and we could have serious difficulties simply from the perception of a peak, even if the perceived peak should later prove to have been a false alarm.

But I agree with everything else that you have said, including the scenario that you describe in your final paragraph.


David in the UK,
I am in regular contact with several UK analysts, both military and civilian.
Your nation seems to be awakening to the unhappy brevity of fossil fuel supply: from having little domestic production other than coal, to the sudden discovery of the wondrous North Sea oilfields, to Mrs. Thatcher’s gung-ho approach to extraction, to the sudden realization that your one-time bonanza had peaked within a generation, and finally to the stark realization that the UK will forever be an importer of oil & gas…. all of this within half a lifetime.

To the UK’s credit, at least they are taking a serious look at how one might manage fuel emergencies, which is more than we can say in North America, where fuel emergencies are barely on the radar.
Brits learned in Sept. 2000 just how problematic a liquid fuels supply problem can be, but here in Canada we have had no such experiences.
We are very complacent….

[Rick M]

This morning I worked my way through three recent UK documents:

1. DECC's Business Continuity Management for Fuel Shortages (Nov. 08)

This brief document (10 pgs) contained the observation that local fuel supplies "could be exhausted within 48 hours of an incident and it could take up to 10 days before stock levels are fully restored" (p.2).

DECC's Maximum Purchasing Scheme would limit purchase for non-essential users to maximum 15 litres (roughly 3 gallons).
This strikes me as a bad idea for two reasons:
1. History: In USA during the 1979 crisis they limited purchases to $5 max, a similar volume. As Yergin states, "The results were exactly the opposite of what was intended, for it meant that motorists had to come back to gas stations that much more frequently" (The Prize, p. 692).
2. Common sense: People will want to top up their tanks as soon as they have gone 75 miles or so.
Topping-up creates line-ups which waste time & additional fuel and increases tensions at the pumps.

Better to have a fixed limit, say 30 litres, no more and no less.
That will reduce topping up.
Emergency pricing will do the rest of the job....

Here is the link:
http://www.cabinetoffice.gov.uk/medi...el_nov2008.pdf

2. NHS Guidance on Planning for Disruption to Road Fuel Supply (Oct. 08)

At 30 pages, this is the most comprehensive of the three documents.
It contained a few interesting observations:
- In the aftermath of Hurricane Katrina, health facilities had power and their lights acted as a beacon (literally) for displaced citizens, and this created some security issues for those facilities.

- This doc has several warnings not to underestimate the complexities of a fuel shortage, which is prudent.

- The "Myth of a Central Fuel List" (p. 14) is interesting... it indicates how seriously businesses view their fuel supply and gives a hint of the efforts that people will go to in order to gain preferential access/Essential User status.

- The recommendation to "attempt to have all workers try public transport options" (p. 14) of course makes sense, but as Kathy Leotta points out, "Transit systems have only limited capabilities for quickly increasing services... due to a small supply of extra vehicles and drivers" (p. 4).
Switching to public transit will be easier said than done.

- Other than its request that "all unforecasted costs... are captured for audit" (p. 17) there is little acknowledgment of the budgetary concerns which could quickly arise. It seems highly unlikely that any free-market economy could have an extended fuel supply problem without also having an extended price spike.
Here is the link:
http://www.dh.gov.uk/en/Publications...ance/DH_089955

3. Heart of Birmingham NHS Fuel Shortage Plan (reviewed June 27/09)

I found this 21-page plan to be the most intriguing of the three since it addresses some of the significant details of managing the Temporary Logo Scheme (p. 4-5), issues around communicating info to the public (p. 6), concerns about supply chain failures, etc.

Returning to the topic of budgetary problems arising during a fuel emergency, it is puzzling to see no warnings in any of these three documents that pricing during a fuel emergency could prove problematic to their budgets and/or to the service delivery capability of their agencies.
In the Birmingham document, the topic of Financial Implications (Sect. 12.0) is raised, but this section contains a single unfathomable sentence: "There are no significant financial implications anticipated in the implementation of this plan" (p. 13).

Similarly, Sect. 10.0 on Training states: "There are no specific training requirements associated with this plan" (p. 13).

Both NHS documents contain some specific and sensible recommendations for personnel, for delivery of services, accountability re fuel use, etc.
One would think that this would surely require some rather detailed consultation with staff (and subsequent training) in order to implement these recommendations.
Here is the link:
http://www.bpcssa.nhs.uk/policies/_h...cies%5C881.pdf

4. Some final comments

To their credit, the UK planners have recognized two central facts:
1. a fuel emergency can be a whopper of a problem, and
2. fuel supply and other emergencies must be addressed at the local level first, hence the need for local plans, pre-authorization & empowerment, etc.
Here in North America, there seems to be little awareness of either fact, and therefore precious little action, especially at the local level.

I fear that even the UK planners may be overlooking the issue of price spikes, the resulting budgetary constraints & economic difficulties, and the potential threat to civil order.

[Surferbeetle]

From the Washington Times by Paul Saunders: Oil losses pull Russia's claws

In Russia's case, the crisis has clearly profoundly damaged both the overall economy and the energy sector. Russia's stock market is down around 75 percent, its officials project a 2.2 percent contraction of gross domestic product in 2009, and the Central Bank has already spent more than $200 billion, one-third of Moscow's reserves, trying (largely without success) to defend the value of the ruble, now down by one-third against the dollar. At the same time, Russian officials admit to $130 billion in capital flight in 2008, with the true figure possibly significantly higher.

The state gas monopoly Gazprom also faces growing pressure as prices tumble in the European market, which provides an estimated two-thirds of the company's profits.