Energy Security

[Rick M]

I have carefully read a document issued by the Chief of Force Development (DND Canada) entitled "The Future Security Environment 2008-2030."
What follows is from FSE Part 1, subtitled "Current and Emerging Trends" (27 January 2009).

First, this quote: "many experts believe that peak oil has been reached and.... Consequently, the world will face oil shortages and disruptions, rising prices, and increased competition" (FSE, p. 41).

The use of the word "will" in this context is significant, as this document (following the practice of the DCDC Global Strategic Trends Programme in the UK) attaches a probabilistic meaning to the term.
In its Terminology of Probability, the term "Will" means "Circumstances are already moving in this direction, and moving off this trajectory is not foreseeable."

Therefore I'm very pleased to see DND accept the view that peak oil is a fairly imminent issue, and there is some reassurance in seeing it warn of the near-certainty of oil shortages, disruptions and higher prices.

Part Two of the FSE series will be entitled "Future Shocks," where some attention should be given to the extraordinary complexity of dealing with oil supply shocks.
I will try to connect with the DND researchers who are working on this aspect.

Also, the footnote for the above info (#60) is credited to six sources, including Cameron Leckie (Major, Australian Army), Peter Johnston (researcher at DRDC in Canada), Kjel Aleklett (President of ASPO) and Robert Hirsch (who was the lead author of the Hirsch Report for DoE in 2005).
Links to the excellent research of all four have been provided on this site over the years.

Here is the link:
http://www.cfd-cdf.forces.gc.ca/docu...0Jul09_eng.pdf

Of course it's one thing for DND to identify the concerns (though that certainly is step one, and I'm thankful for it), and another to do anything about it.
Canada's lead agency for energy, Natural Resources Canada, still insists that "there is no imminent peak oil challenge," and DND may be understandably reluctant to call them on that.
Also, there is a clear disjuncture between DND's warning of the near-certainty of oil shocks and the inadequacy of Canada's existing LFE plans at all three levels (national, provincial and local).

But it's encouraging to see such a prudent medium-term outlook on oil supply.
It's a clear statement from Canada's military analysts that
a) it views peak oil as a valid concern and
b) it views future oil shocks as a near-certainty.

Now we need civilian authorities to act on these prudent warnings....

[Bill Moore]

RickM, I agree, and I wonder how anyone with even a little awareness of the issue could deny it. One can debate whether we have already hit peak oil, or debate when we hit it, but if it hasn't happened, it will happen, and the consequences over time will be severe (as we saw do the pre-mature surge in oiil prices due to largely to spectulators). Imagine sustained triple digit prices for a barrel of oil?

In very simple terms you can view the world as a coffee cup with finite capacity to hold oil, and it can't produce oil as fast we're extracting it.

Assuming there are no major system shocks (black plagues, nuclear war) that greatly reduce the global population and demand for oil, it is probably a safe bet that the combination of raising global middle class (especially in China and India) and increasing population will significantly increase demand, thus push us past peak oil an ever increasing pace.

The potential saviors are efficiency technology or alternative energy sources, the former has already made a dint, and the latter is far from being a reality.

This is a much greater national and global security issue than Al Qaeda, and unlike the last 9/11 we can clearly see this 9/11 coming. It also creates a situation where nation-state wars will be likely to secure energy supplies, so like many others I vote for caution against diverting our entire military away from large scale warfighting to engage in irregular warfare. We need to be prepared to defend what essential first.

[Surferbeetle]

Dammit Bill I'm a civil engineer not a mechanical, chemical or petroleum engineer...

IMHO this book is worth every penny. Beyond Oil and Gas: the Methanol Economy by George A. Olah, Alain Goeppert, G.K. Surya Prakash

Amazon Review -The increasing world population and the declining availability of cheap oil threaten to plunge the world into a global energy crisis. Concerns over our reliance on oil and gas and the impact of fossil fuels on the environment have escalated significantly in recent years. This book explores current energy sources (oil, natural gas, coal, atomic energy) as well as renewable alternative energies (wind, solar, geothermal, biomass, etc), the interrelation of fuels and energy, and the extent of non-renewable fossil fuel resources. Besides the need to find alternates to diminishing fossil fuels, the authors outline the need for hydrocarbons and their products way into the future despite depleting reserves and global warming, and examine the envisioned hydrogen economy and its significant shortcomings.It illustrates how methanol can be used as a convenient liquid fuel and a raw material for hydrocarbons and their products. The needed methanol can be made from a variety of sources including carbon dioxide (the main greenhouse gas). This timely book demonstrates how carbon dioxide from industrial exhausts (and eventually even atmospheric carbon dioxide) can be converted into safe liquid methanol.

Natural gas changes the energy map by David Rotman in the November/December 2009 edition of Technology Review

Lifeline for Renewable Power By David Talbot in the January/February 2009 edition of Technology Review

A Path to Sustainable Energy by 2030; November 2009; Scientific American Magazine; by Mark Z. Jacobson; Mark A. Delucchi

22 Dec '09 Bloomberg, Iraq’s Oil Output Quota May Become OPEC’s ‘Hot Iron’ (Update1) By Rob Verdonck

Iraq’s plan to boost oil output with the help of foreign companies may upset the Organization of Petroleum Exporting Countries’ efforts to support prices because the nation has no quota to limit its production.

Oil companies including Royal Dutch Shell Plc, BP Plc and OAO Lukoil may help Iraq meet a target to boost oil output capacity to 12 million barrels a day in the next six years after winning oil licensing rounds earlier this year.

[Rick M]

Bill. I agree with you... we need to err on the side of prudence.
If our fossil fuel reserves turn out to be double what the PO analysts say, then we will have ensured that some gets saved for our grandkids, and we will have helped to address Climate Change.
Erring in that direction should not have overly negative consequences.

I tend to fucus on supply issues, not CC imperatives, but that's not to diminish their importance.

Surfer, I can't examine your info without paying.

I have heard good things about methanol and wish I could speak in an informed way to that topic, but I don't know enough about it.

I fail to see the relevance of the Leonard McCoy link.

I've already presented plenty of countering evidence re shale gas.
If it can be extracted in the volumes that are required, at affordable prices and without wrecking farmers' water, then of course I will join in the celebration, but I think we are a long way from celebrating just yet.
I support Art Berman's call for "critical thinking" on SG first.

Meanwhile, I think National Defence in Canada is on the right track... deviation from existing trajectories seems unlikely.
Those trends were more fully delineated here:
http://www.energybulletin.net/node/49779

If you wish to challenge any of them, then I would like to know on what grounds, and I would like the opportunity to respond.

Thanks for your ongoing interest, both of you.

-rm

[Rick M]

This article today gives a good summary of what appears to be going on in Yemen, and mentions oil supply concerns.

The article states that less than a fifth of world oil production comes from the Gulf region, but I'm fairly certain it's at least 25% from just the 7 countries along the Gulf (around 22 mbpd of the 84-86 global prod'n).

http://news.yahoo.com/s/afp/20100110...20100110124049

[Rick M]

This has the potential to be a story of the highest order.
It's early yet, but the military has led the way on many fronts.

This is from yesterday's Guardian in the UK:
http://www.guardian.co.uk/environmen...-problem/print

This provides some background from DARPA (last Oct):
http://www.defencetalk.com/darpa-wor...endence-22549/

[Dayuhan]

There's a lot of interesting work being done on what might be called next-generation biofuels. Algae has a lot of potential and algae-based fuel production could be a significant industry in wet tropical countries (think Cambodia or Bangladesh) that desperately need the revenue. I do wonder how much land area you need to achieve commercial production... how much yield per hectare/year? Another factor will be the extent to which algae production competes for land with other users of flat wet land, for example rice cultivation, fish culture, and the desire to preserve remaining mangrove areas.

Cellulose-based fuels are of course a much better idea than conversion of grain to oil, a pretty deranged idea from the start.

I personally don't believe that we will see a single "magic bullet" energy source that will replace oil, rather the emergence of a wide variety of dispersed options for reducing dependence on oil. The key to development for all of them, of course, is to keep oil expensive.

[Rick M]

Anthony Kimery at Homeland Security Today has demonstrated a sustained focus on oil supply vulnerabilities.
In this respect he is not unique: a growing number of analysts, both in the Peak Oil camp and outside of it, are active on this issue.

But Kimery is one of the few analysts who have moved beyond the usual concerns (eg. dependence on foreign oil, the transfer of funds from American citizens to unfriendly regimes, etc.) and considered the potential effects domestically of a major oil disruption.

Kimery has written numerous articles on various aspects, but I will introduce two which are particularly relevant.

1. Petrojihad: Bin Laden and the Oil Weapon (Sept. 07, 2 pgs)

This article provides some background context and gives a concise summary of Al Qaeda’s efforts against major oil installations (following Bin Laden’s 2004 call to prioritize such targets).
North America of course needs to have effective plans for fuel emergencies in any event, but knowing that there are determined people who are actively working to cause disruptions should be sufficient cause for us to review our fuel emergency plans.
Here is the link:
http://www.hstoday.us/content/view/578/92/


2. Oil Disruptions Threaten National Security (Aug. 08, 8 pgs)

This study provides further analysis of the Oil Shockwave exercises as well as issues which surround the Strategic Petroleum Reserve.
But most striking are Kimery’s warnings about the domestic vulnerability to a major oil shock.

He correctly warns that a well-executed terrorist attack could create a problem “unlike anything the nation has confronted.”
Kimery points out that “having no plan to deal with a catastrophic interruption” is an obvious vulnerability and specifically warns of the potential for “unprecedented civil unrest.”
He also points out that such a disruption would weaken the response capability of “law enforcement and first responders.”
Increased civil unrest coupled with decreased response capability is clearly a dangerous internal threat.

Furthermore, despite DHS awareness of the vulnerabilities and their ongoing efforts to grapple with these concerns, “the department does not have an overarching oil and fuel contingency plan in the event of a sudden disruption of imports….”
This, however, should not really be a surprise: I have a 2” binder full of studies (done by the GAO alone) over two decades (1974 - 1994) which consistently pointed out deficiencies in the DoE fuel emergency plan.
I have found no evidence that these problems were ever corrected.

Anthony Kimery is to be commended for his efforts to draw attention to this long-standing (and ever-increasing) vulnerability.
Here is the link:
http://www.hstoday.us/content/view/4750/150/

Thanks for your response, Steve, and thanks to you all for considering this information.
If anyone has suggestions on how your nation and mine might address this vulnerability, please offer them.

[Rick M]

The first Oil Shockwave exercise was conducted in June 05 using top-level Washington insiders and senior military officers (Gates, Woolsey, Gen. Kelley, etc).
Other Oil Shockwave exercises have been conducting in subsequent years.

Last night CNN carried the first Cyber Shockwave exercise (2 hrs).
I only got to see the final 45 mins but it was very interesting.

It's supposed to be repeated tonight on CNN @ 8 pm.

[SethB]

I'll admit to not following this thread as closely as I should have. I've been interested in energy for a long time, and used it as a research focus in undergrad.

Forgive me if this point has already been addressed.

There are two kinds of energy security.

Strategic energy security relates to nations and economies. A strategic disruption is something along the lines of the oil embargoes of the 1970s.

Operational energy security relates to issues concerning the ability of a military to carry energy from where it is produced to the point of consumption. In peacetime this is easy. In combat zones it is difficult, dangerous and expensive.

From a military standpoint, the strategic threat isn't particularly high. DoD burns about 1% of domestic petroleum consumption (as a transport fuel). America produces 40% of its fuel domestically. So the military won't run out of fuel even if our supply lines were disrupted. What is a concern is disruption in theater. American ground forces are extremely fuel-bound. Not just for a mobility fuel, but also for electricity to power communications/computers/air conditioning etc.

Fuel supplies are relatively easy to interdict. Further, fuel use contributes to the general logistics snowball that surrounds US forces. Lastly, convoys can only meet the enemy on the enemies terms.

So the short term way to increase energy security is to reduce the operational need for energy.

Algae based fuels may indeed be the future, but in military terms they are little more than a stunt. If DARPA does succeed in developing them, then the benefit will be to society in general rather than the military in particular.

[Dayuhan]

Anthony Kimery is to be commended for his efforts to draw attention to this long-standing (and ever-increasing) vulnerability.
Here is the link:
http://www.hstoday.us/content/view/4750/150/

I started reading this, but stopped at page 2 when I got to this...

Superpower confrontations for energy resources in Central Asia has begun. Confrontations with China can't be far behind, especicially as China works to get a foothold in the Middle East for its long-term strategic crude needs. China especially has its sights on Saudi Arabia, the US’s biggest supplier.

People who publish ought to get at least their basic facts straight: the US's biggest supplier, by a huge margin, is Canada. Saying that China "has its sights" on Saudi Arabia sounds terribly sinister, and doesn't reflect any particular real-world threat. China already buys large quantities of oil from the Saudis, in fact some reports suggest that in 2009 more Saudi oil went to China than to the US, with the US buying more from Mexico and Nigeria than it did from Saudi Arabia.

I also note a slightly irritating tendency to translate involvement of American companies in, say, pipeline construction in Central Asia, to American efforts to gain access to the region's oil. The involvement of American companies in an oil project does not mean that the oil will be going to the US. All in all he seems to play a bit fast and loose with his facts and seems eager to put a panic spin on every situation.

I suspect that the threat of terrorist attack is exaggerated: global oil infrastructure is dispersed, and a terrorist group would have to conduct a large number of effective simultaneous strikes to make a major impact. There's little evidence to suggest that AQ has the capacity to do this.

I'd be more concerned with the possibility of a major flareup with Iran, which would have the capacity to create a major supply disruption, or of major internal political upheaval in a producing country, for example Nigeria or Venezuela. In any case the impact would be felt more as an extreme price spike than as an absolute absence of oil.

[Rick M]

Seth, I agree, I cannot imagine algae replacing anything like the 86 mbpd which we currently consume, or even putting a serious dent in that amount.

Steve, I would like to respond to three of your points.

1.Saudi Arabia vs Canada
You are correct, Canada supplies more crude & product to USA than any other exporter.
What you did not mention is that during the past year, imports from SA have declined by almost 40%…. In other words, the profile of US import supply has changed considerably during the past few years (as has that of eastern Canada).

Eighteen months ago, when Kimery wrote his article, the difference between the top five exporters to USA was actually quite close… certainly Canada did not dominate “by a huge margin” at that time.
An author who published in Aug. 08 would have probably been relying on data from early to mid 2008, which at that time showed the following approximate monthly volumes (from EIA):
US imports of crude & products from Canada = 73,000,000 barrels (June 08)
Saudi Arabia = 52,000,000 (July 08)
Venezuela = 41,000, 000 (July 08
Mexico = 40,000,000 (July 08)
Nigeria = 36,000,000 (April 08)

I agree, Kimery’s point about SA being USA’s largest supplier was incorrect, but just barely, both in terms of timing and volumes.

Meanwhile, your central point, that Canada is the USA’s main supplier of imports “by a huge margin” is also not accurate.
Although Canada’s supply to USA is now about triple that of SA, that was certainly not the case when Kimery wrote his article 17 months ago… Canada’s supply at that time was not even double that of SA or any other country.
Canada was #1, but not overly so, and we are still (on a monthly basis) usually less than double your #2 supplier, which I would hardly regard as a huge margin, even to this day.

As for the US buying more from Mexico and Nigeria during the recent past, you are again correct: they do supply more than SA.
However, one must ask how long we might reasonably expect that to continue: Cantarell is in free-fall and Nigeria seems increasingly unstable.
Saudi Arabia was once your main source of imports and I have little doubt that they will eventually regain that status, so it may only be during this interim that Kimery would be incorrect (and that may prove to be a relatively brief period).

An additional point is that the EIA import stats cover both crude and products.
Although the bulk of Cdn exports to USA are western crude (increasingly from the tar sands), our largest refinery is in New Brunswick. It refines overseas crude and the majority of its production is exported to your Northeast.
I don’t know how much of Irving’s crude comes from SA, but my understanding is that it is considerable. So although the EIA stats would show this supply as coming from Canada, the original source for some of it is SA..
This would increase SA’s contribution and reduce that of Canada, thus narrowing the gap and making Kimery's statement not that far off the true situation.

2. China
China seems to understand the implications of peak oil, and is responding in the way that any country which “gets it” would respond.
I’m not sure that I would call their actions sinister: I would call them prudent,

3. Export Decline and fuel emergencies
As I mentioned, Kimery is one of the very few analysts who points to the potential for domestic disorder as a result of a major fuel disruption.
I do not view this as putting a panic spin on anything.
I have great respect for the GAO, and they spent 20 years trying to get DoE to fix the obvious inadequacies in your country’s fuel emergency plans.
GAO was certainly not out to create panic (nor is Kimery)… they simply wanted to see prudent action on an obvious & ongoing vulnerability.
To this day, many of these problems have still not been addressed.

I agree with your final paragraph on both counts: the potential source of a major fuel emergency, and the certainty of a price spike as opposed to the unlikelihood of an absence of oil.

On the oil import vulnerabilities, this was posted today:
http://www.energybulletin.net/node/51695

USA is already looking at shortfalls from two of its top 5 suppliers (Mexico and Venezuela).
Should anything interfere with your supply of Cdn oil as well (eg. eastern Canadians demanding a “Canada-first” energy policy), then I think you would have a scenario which makes Kimery’s concerns appear entirely prudent and not at all far-fetched.

The global oil export/import situation is changing quickly.
I see little justification for complacency, least of all here in North America.

[Dayuhan]

Eighteen months ago, when Kimery wrote his article, the difference between the top five exporters to USA was actually quite close… certainly Canada did not dominate “by a huge margin” at that time.
An author who published in Aug. 08 would have probably been relying on data from early to mid 2008, which at that time showed the following approximate monthly volumes (from EIA):
US imports of crude & products from Canada = 73,000,000 barrels (June 08)
Saudi Arabia = 52,000,000 (July 08)
Venezuela = 41,000, 000 (July 08
Mexico = 40,000,000 (July 08)
Nigeria = 36,000,000 (April 08)

I agree, Kimery’s point about SA being USA’s largest supplier was incorrect, but just barely, both in terms of timing and volumes.

Meanwhile, your central point, that Canada is the USA’s main supplier of imports “by a huge margin” is also not accurate.

20 million barrels/month difference might reasonably be classed as a huge margin, but possibly I should have said "large", or "significant". Either way, the point remains. Kimery is an oil analyst, he certainly knows (or certainly should) that SA is not "the US's largest supplier". Still he come out with the statement:

Superpower confrontations for energy resources in Central Asia has begun. Confrontations with China can't be far behind, especicially as China works to get a foothold in the Middle East for its long-term strategic crude needs. China especially has its sights on Saudi Arabia, the US’s biggest supplier.

On every level this comment seems designed to provoke an irrational level of fear. China isn't "setting their sights on" Saudi Arabia", they're buying oil from Saudi Arabia. So what? There's no confrontation involved, no US-China competition over Saudi oil, just a shift in the patterns of buying and selling. This happens, and it will continue to happen. These trends bear watching, but they aren't going to produce a shockwave and they don't deserve this kind of clutch-the-pearls-and-gasp-in horror rhetoric.

Kimery pulls the same move in the discussion of Central Asia, casting the Russia/Georgia conflict as a battle over the BTC pipeline. Of course there are lots of juicy threatening quotes from Georgian officials, but this stuff has to be taken with a huge grain of salt. We all know the Georgian government wants to pitch themselves as a vital link in the West's energy future, to maneuver the US into giving them more support vs Russia. The US, wisely I think, has declined to be baited. In perspective, BTC is not directly affected by the South Ossertia conflict, and would not be unless Russia actually annexed all of Georgia. In any event the pipeline carries 1.2 mbpd tops, generally less. If it were cut suddenly the European importers who buy the bulk of the output would have to scramble on the spot market. Prices would rise. Again, though, a situation that bares watching but not something cataclysmic.

Then we have stuff like this:

Western energy companies, backed by their respective governments, have been drawing up plans to develop the Kashagan Field, a Caspian Sea reservoir estimated to contain more than ten billion barrels of crude. The group that's working to develop this field includes Exxon Mobil and ConocoPhillips, and their plan is to transport some of this new found oil through the Baku-Tbilisi-Ceyhan pipeline.

Some partial truths here. it's true that US companies are involved. It's also true, but not mentioned, that the majority of the consortium is European. It's true that some of the oil is slated for BTC. Also true, but not mentioned, is that Kashagan is seen as the main source for the Kazakhstan-China pipeline and will also supply pipelines passing through Russia. Again, there seems to be a fairly egregious attempt to portray Kashagan as a matter of particular interest to the US.

In general, the view that Central Asia is a confrontation waiting to happen seems well overblown. Of course there's friction and of course there's potential for problems, that's always the case. So far, though, it's been pretty limited. The Kazakhs, Turkmens, Uzbeks, and Azerbaijanis are not stupid: they're pursuing Russia-free exports to the west via BTC, Russia-free exports to China, and also expanding exports through Russia, diversifying their export base without confronting or antagonizing anyone. Companies from all over the world are involved.

Russia's east Siberian pipeline is expected to supply 1.6mbpd to east Asia, the Kazakh-China line will boost that to 2mbpd, with a substantial amount of gas from Turkmenistan. That works rather well for the US and Europe, because it reduces east Asian demand on the Middle east and Africa. Whether or not that specific oil flows to the US is irrelevant, if it increases the supply the US benefits.

In the western hemisphere, of course Mexico and Venezuela will continue to decline, with a bit of offset from expanded exports from Brazil and from deep water finds in the Gulf of Mexico, and I'd expect the dip in US imports from Saudi Arabia to be temporary. In both Mexico and Venezuela, though, those declines are driven by politics, not geology, and will not be permanent: despite his wettest dreams Chavez will not be eternal, and the Mexicans will eventually realize that they have to allow foreign participation in their oil industry in order to keep any kind of export revenue. That may take a while, but it's oil in the ground for another day. Again, this is a trend that will play out over the next few decades, not a source of imminent catastrophe.

There's a great deal of nonsense talked about oil. A good example is the talk about how awful it is for the US to send American money to unfriendly regimes by buying their oil. Realistically, if an unfriendly regime has oil, somebody will buy it and they will get money. Whether that money comes from the US or not is pretty meaningless. If the US doesn't buy from Iran and China does, we're still sending US consumer dollars to Iran, they're just making a brief stop in Shanghai along the way. It just doesn't make any difference.

Another absurdity is the common assumption that because a consumer buys from one source they are somehow dependent on that specific source. It's just not true; oil is fungible, all consumers are equally dependent on all producers. Japan buys from Abu Dhabi, but if Abu Dhabi was shut down for some reason Japan would go out and buy elsewhere. The price would rise, and all consumers would suffer equally. I've seen all kinds of horror at talk of China buying 1mbpd from Venezuela, as if the US will then be short. Of course if China buys 1mbpd from Venezuela they will buy 1mbpd less from other sources, and the US will simply buy that. I suspect the China-Venezuela deal is mostly Chavez bigtalk anyway,there's just no logic to it. China would have to retool refineries to handle heavy Venezuelan crude, and trans-Pacific shipping in little Panamax tankers isn't exactly efficient.

I could go on, but that's enough. The opposite of complacency is not prudence, the opposite of complacency is panic, and it's every bit as counterproductive as complacency. Prudence lies somewhere between, and I don't think the cause of prudence is served by unjustified howling about impending doom. If anything that just reinforces complacency when the projected doom doesn't materialize.

[Rick M]

Hi, Steve

As usual, you have given a very detailed reply, and I thank you for it.
I will address your points in the same order that you presented them.

1. SA and China
I’m not so sure that the recent (and quite dramatic) drop in US imports from SA could not lead to problems down the road.
USA was SA’s primary customer for decades, and although diversification is supposed to enhance security of supply, the obvious American shift away from the world’s largest supplier could have the opposite effect.
(American purchases of Saudi oil were only 837,000 bpd in Nov. 09, the lowest in 21 years.)
Most suppliers will prioritize their loyal customers, and the US may now appear less than loyal.

As for the shift in buying and selling, there is an increasing trend for China to enter into bilateral long-term contracts with various suppliers.
This trend understandably raised concern not just for Kimery but also for the US admin.
Please note Energy Bulletin’s “quote of the week” a month ago:
http://www.energybulletin.net/node/51213

As this article (yesterday) indicates, ties between China and SA are strengthening:
http://www.thenational.ae/apps/pbcs....702279924/1137

It could be China, not the USA, that enjoys the benefits of "preferred customer" in the years ahead.

I agree, these trends aren’t going to produce a shockwave, but Kimery did not claim that they would, least of all with exaggerated rhetoric.

2. Export decline
You are clearly more optimistic than I (and many others) re. future oil supply, but I doubt that you would deny the increasing evidence on export decline (ie. that many of the major producers have already peaked both in production and in their capacity to export).
I certainly assume that you agree that we cannot all be importers.

I don’t accept that declining production in Mexico and Venezuela is due more to politics than geology. I really doubt that Mexico will find another Cantarell, and there is little optimism that Mexico can ever return to its peak production of 3.4 mbpd.
As for Venezuela, comparison with Canada is probably apt: both peaked in conventional oil some time ago, and future production lies primarily in oil sands.
However, oil sands production is never assessed as net energy, which is a gross overestimation of the energy which actually comes from the resource.
If we adopt a net energy evaluation, we have a less favourable (but more honest) assessment of production from these reserves.

In short, I accept that political and technical issues are significant factors, but I do believe that even larger forces are at work and that neither MX not VZ will ever surpass their historic peaks, least of all when net energy is factored in.
I agree with you that their current declines may not be permanent… there is certainly the potential for improvement, and I agree that we will eventually see some.

Bottom line: I doubt that a decade from now, importers will have the freedom to “shop around” that you describe.
You are correct in stating, “all consumers are dependent on all producers,” though one might add, “all importers are dependent on all exporters.”
As the number of exporters and their individual export capacities decline (as they must), importers will have less of the freedom to shop around that you describe, and there will be more potential for the sort of supply crunches that Kimery and I believe are likely and need to be planned for.

I don’t see this as imminent catastrophe, but I do see this as a reasonably imminent threat which ought not to be minimized, either.
Indeed, I see few other high-probability events which have the potential to cause so much internal distress to your country and mine as a major constriction of oil supply.

3. Central Asia
I won’t attempt to respond to your arguments… I don’t know enough about those issues and will not pretend that I do.

4. Prudence
I won’t debate the semantics.
I agree, panic is rarely a productive response.
But I think you are being a bit unfair in the way that you characterize the noting of some well-documented trends on a matter as vital as our oil supply.

Far from howling about impending doom, I think we are asking that the concerns which have been raised by Hirsch, the CNA study, War College analysts, the 2008 WEO, etc on future oil supply, and by the GAO, etc on fuel emergency plans, be addressed in a sustained manner.

I have made every effort to provide SWC with links to credible, sourced information (often from military/security researchers) on these issues, and have done my best to summarize their concerns in accurate, reasoned, non-alarmist language.

I agree with your final statement: crying wolf reinforces complacency.
But so does regular discounting of credible evidence (which the tobacco industry did for decades, and which we see in the ongoing debate over climate change).

[Dayuhan]

I don't see the current shift in import/export patterns as a reflection of any fundamental alteration in the US/Saudi relationship. I suspect that both governments see domestic advantage with little penalty in downplaying that relationship at the moment.

I suspect that when push comes to shove, long term contracts and preferred customer relationships are going to mean exactly nothing: oil will flow to whoever has the money to pay for it. If all the buyers are willing to pay, the price will rise until the will and ability to pay drop.

I really wonder how the Chinese method of using bribery to organize long term contracts in marginally governed nations is going to work out for them in the long run. US and European companies did a lot of that once upon a time, with mixed results. You pay someone to sign a contract and it all seems great, until the guy you paid has a close encounter of the worst kind with a bullet, and the new guy wants a new deal. Long term contracts with governments that may or not be around tomorrow are of limited value, and the ability of governments to ignore contracts that no longer suit their interests is well established. If Angola or the Sudan decides that their contract with the Chinese no longer applies, what will the Chinese do? Send the marines? I doubt it.

Nobody really knows what Mexico still has, because nobody has really looked: PEMEX hasn't the technology or expertise, and Mexican politics won't let anybody else look. Venezuela's drop in conventional oil production is generally attributed more to underinvestment than to scarcity. In any event these are, again, trends that will play out over time, not a potential cause of sudden catastrophic interruption, a different matter altogether.

I have very limited faith in Government's ability to plan effectively in advance for the sort of event that's being discussed here. When I hear of Homeland Security telling DOE to plan for catastrophic interruptions I don't see prudence, I see bureaucrats trying to score some points with Congress by raising an alert that makes somebody else do some work. I have no doubt that somewhere in DC is a file with plans A(1) through Z(33/B) inclusive. I also have no doubt that when crisis comes it will fail to follow the parameters of any of the plans, and that we'll end up tossing all the plans and responding - probably not very well - to the circumstances that actually occur.

As oil becomes more scarce it will become more expensive, and as it becomes more expensive more effort will go into reducing consumption. In the meantime event-driven interruptions will be met with responses developed to suit the circumstances that occur, as they occur. Probably not the way it should be, but not too many things are the way they should be. Government simply lacks the capacity to force the response to precede the stimulus, or to prepare effectively for unknown events. Whatever happens, the response of Government will be governed not by long-term interests, but by what is politically salable in the short term. It's the American way.

My own preferred plan would be to use policy to mimic scarcity and tax all energy at a rate designed to simulate sustained oil prices of $120/bbl+. That might raise enough money to pay down a bit of debt, and it might get us to trim some consumption and develop viable alternatives... but it's not going to happen, so it's kind of pointless to think about it.

[Rick M]

I just stumbled upon this... it should be aired tomorrow evening on Nat Geo channel (7 pm eastern time?):
http://channel.nationalgeographic.co...ideos/07862_00

It seems overly sensational.. from abundance to running out very suddenly, but it may warrant watching, if only to see how Nat Geo (which often does excellent work) presents the issues.

Some day someone (PBS and CBC should be among the more likely prospects) will take a thorough, reasoned, unsensational examination of the issue of fossil fuel depletion.

Meanwhile, this Nat Geo film may introduce the public to some basic facts and the overall concept.
This should have some merit, although an overly sensational presentation may cause people to dismiss peak oil as alarmist nonsense.

[Rick M]

Hi, Steve

Sorry for my very slow response.
I have 3 shorter items and then some observations on planning for liquid fuel emergencies.

1. Nat Geo film
I found nothing on Monday evening on the Nat Geo Channel that we receive here in Ontario.
Did anyone see their show on PO/oil emergency?

2. Preferred customers
If I’m not mistaken, VZ had (maybe still has) a special price for Cuba, so the global marketplace does not work entirely on the basis of international supply and demand.
During the 73-74 embargo, ME suppliers were clearly prepared to take the financial hit to prove a point.
Should global oil supply become tight, and the price become very high, it is conceivable that we may see more preferential treatment, not less.
If producers are getting unprecedented prices, say of $175/b, they may be thrilled with that and may be quite happy to exercise the political freedoms which high prices allow them to exercise.

3. China
Today’s report from the IEA citing a 28% increase in China’s demand (Jan. 09 to Jan 2010) is indeed stunning.
Their prediction that we will soon be back to 86.6 mbpd should have us bracing for a return to $147 oil.
http://www.bloomberg.com/apps/news?p...d=aUSnfxw9xh6s

4. Gov’t plans for fuel emergencies
You said that you “have very limited faith in Government’s ability to plan effectively in advance for the sort of event that’s being discussed here.”
I agree, though I think for different reasons.
My sense is that you believe that they are being asked to plan for the unplannable… that the crisis which will occur will be significantly different from the one(s) that they planned for.
And you could be correct… there is a long & expensive history of people making major investments against a crisis which soon faded away (eg. the 1960s bomb shelters, air raid sirens, etc which I recall as a kid).
You may also be correct that “when the crisis comes, it will not follow the parameters of any of the plans” but I think that will be due primarily to a reluctance to subject the existing plan to hard-nosed scrutiny (here is where military logisticians could help), not to an inability to predict the deficiencies of the plan.
I agree with your point about responses being “developed to suit the circumstances that occur, as they occur.”
Unfortunately, the need for future flexibility seems to be a standard rationale for vague planning now… let’s have general guidelines but few specifics, since we don’t if or when or what shape the actual fuel emergency will take.
This is entirely understandable for several reasons:
1. we truly don’t know the specifics of the next fuel emergency
2. it’s easier and cheaper to keep plans vague in the interim.

But meanwhile, there are several things that we can anticipate with some certainty:
a. Any fuel supply problem (or even the perception of one) will quickly translate into a price spike, as you have indicated.
b. To take just one sector, the price spike will adversely affect rural residents more than urban residents since they lack mass transit and have longer distances to travel to obtain their essentials.
c. Farmers are both rural and usually low-income, so they will have a doubly hard time.
d. Farmers will therefore cut back on expenses (including production activities) but food imports will also become increasingly problematic. Reducing both domestic production and imports is clearly a recipe for food supply chain trouble.
e. Having high fuel prices and high prices for food and other essentials is bound to cause domestic discontent.
f. Add to the food supply issues all the non-essential sectors that cannot function without cheap fuel (eg. pizza deliveries, pro sports, tourism)… then the tax base takes a triple hit: declining tax revenue, increasing demand for financial support, and increasing need for law enforcement.

My point here I that all of this is quite foreseeable.
I you have watched the video from ASPO-Denver, you will know that the GAO, Alan Smart, Kathy Leotta and Helen Peck have all outlined numerous potential problems.
A fuel supply problem in 2013 may not be all that different from one in 1973… we should be able to anticipate the main problems and proactively mitigate some of them.

But as you point out, that would not be the American way (and I must agree, ditto for Canada)… there seems to be no prospect of planning an effective response prior to the stimulus…. “the response of Government will be governed… by what is politically salable in the short term.”
I think that you are (sadly) correct in this assessment, but that does not mean that it’s right/proper.
We are sensible individuals, and we come from strong, practical-minded nations.
Surely we can do better than bumbling along with impractical fuel emergency strategies whose inadequacies have been obvious for decades.

[Rick M]

Matt Simmons continues to do excellent work on global energy supply.
His most recent presentation is entitled Twin Threats to Resource Scarcity: Oil & Water and was presented three weeks ago in Dubai.

This slide deck is shorter than most (32 slides) and of course I don’t know the oral content which accompanied it.
But one underlying theme is this: nothing could unravel global security of energy supplies faster than disorder and conflict, and Simmons points to water supply as a growing threat to both civil order and oil supply.

Simmons begins by pointing out our inability to substitute for water or oil (slides 1-7), long-term concerns over oil supply (8-11), and the looming threat of water scarcity (12-16).

He then focuses on the Middle East for several reasons: its growing population, its precarious water supply, and its surging internal demand for energy… all of which point in one direction: diminishing export capacity (17-21).
If we factor in the underlying potential for disorder (eg. conflict with Iran, terrorist damage to major oil infrastructure), there is little justification for complacency, especially in import-dependent regions such as ours.

As for solutions, Simmons mentions two: proper pricing (slides 7 & 22) and ocean energy (24-29).

This presentation is available here:
http://www.simmonsco-intl.com/files/Marsh.pdf

Simmons’ focus on the nexus between energy and water provides an effective complement to the ongoing work of the U.S. Government Accountability Office, which has undertaken a multi-stage (and quite detailed) analysis of this nexus.
Part one on biofuels was reviewed here (Dec. 09):
http://www.energybulletin.net/node/50988

The GAO’s study of water and oil shale should be released soon.

[Rick M]

The National Intelligence Council has released a report on the expected effects of climate change to the Caribbean region.
This 21 page report is entitled Mexico, The Caribbean and Central America: The Impact of Climate Change to 2030: Geopolitical Implications (NIC Conference Report., Jan. 2010).
The report is authored by a team of private research contractors under the Global Climate Change Research Program contract with the CIA’s Office of the Chief Scientist.

The prognosis of these analysts is bleak.
They see considerable potential for “civil unrest and internal conflicts leading to increased migration” (p. 3).
The source of these tensions is both predictable and (apparently) intractable: increasing population, energy consumption, rising sea levels, fresh-water scarcity and land degradation, coupled with declining food production and an overwhelming dependence on oil imports.

The plight of Mexico City is particularly concerning: it is already “experiencing severe water scarcity and aquifer depletion…. With a population of more than 20 million, the city must pump water from great distances and has had to ration water at least three times in 2009” (p. 12).
Almost all countries in the region have inadequate health services and limited emergency response capability.

The authors are to be commended for their honest and direct assessment.
At the top and bottom of every page is the disclaimer, “This paper does not represent US Government views,” which is entirely understandable.

The full report is available here:
http://www.dni.gov/nic/PDF_GIF_other...ate_change.pdf

[Dayuhan]

Hi Rick...

Re Nat Geo, I don't watch TV and my 3rd world connection precludes watching video of any length online, so 'm pretty much limited to reading text, which I admit to preferring in any event. Much easier to manipulate emotion in video!

Preferred customers... yes poor Hugo does subsidize the Cubans to make a point. I don't see this translating on a larger scale, particularly in a serious emergency. A supplier granting a preferential price to a major consumer would be forfeiting huge amounts of money, and few suppliers can afford to do that unless they are receiving very substantial benefits in return.

To me much of the discussion about the geopolitical impact of oil scarcity seems based on an obsolete cold war paradigm that fails to consider the evolution of co-dependence and shared interests even among rivals and competitors.

For example, many analyses treat the US and China purely as rivals, even suggesting the possibility of armed conflict over oil supplies. But really, how realistic is this? It's true that China needs oil to keep its industrial economy running, but that's not all it needs. They also need unhampered access to open markets that have the will and capacity to absorb their output surplus. China is export dependent, and gaining oil at the expense of access to thriving markets does them no good at all. The Chinese need oil, but they have an equally pressing need to keep their trade routes open and to keep their customers solvent: and as we've all seen recently, when the US sneezes the world catches the cold. China and the US may not be allies, but they are co-dependents, with many shared interests, particularly in generating increased investment in oil production and in keeping trade lines open.

Armed conflict with China over oil supplies is highly unlikely, simply because neither the US nor China has physical control over its key suppliers. Even in the event that China did someday decide that they had to conquer energy, given the land-heavy structure of China's military, the logical targets would be Siberia, Kazakhstan, or Uzbekistan. That would bring them into conflict, but with Russia, not with the US, and the Chinese would have little to gain from that sort of fight: they have money, and it would be cheaper and less risky for them to compete with dollars.

Another place where cold war thinking appears is in the peculiar but common assumption that producer-consumer relationships are somehow permanent and controlled by the consumer. There's a tendency, for example, to see Angola as "their" supplier and Nigeria as "our" supplier. Cold war thinking would suggest that we can somehow get one up on them by destabilizing Angola or by promoting pro-US forces there, or that they could do the same to us in Nigeria. n reality that would be completely pointless. If China is denied access to Angolan oil they will simply go out and bid on oil from other producers, who will be more than willing to sell to them. If Angolan or Nigerian oil output was reduced by internal instability, all oil consumers would suffer equally from the resulting price increase. The idea of "our suppliers" and "their suppliers" is an illusion: all consumers rely equally on all producers, regardless of who they actually buy from.

Co-dependence is not limited to consumers. Many major suppliers, particularly in the Arabian Gulf, has emerged as status quo powers in their own right. Their financial reserves are heavily invested in the West, they see themselves threatened by the same potential antagonists as the West (notably Iran and AQ). Again, that doesn't make us allies, but it provides a level of interdependence that much reduces the possibility that they would deliberately try to damage us.

I guess all I'm saying with all that is that many of the geopolitical analysis that floats around the oil scarcity debate seems to me to be based on outdated and improbable assumptions.

If you look at oil emergencies from a planning perspective, you basically have two scenarios:

1. Sudden but temporary event-driven interruption, such as terrorist attack on major facilities or conflict in a major producer or among major producers, driving a sudden and extreme spike in oil prices.

2. Gradual but long term changes in the supply-demand picture, essentially consumption increasing to a point where it exceeds production capacity, driving a steady increase in prices.

Either way, the issue is not absolute scarcity - oil will continue to be available to those who can afford it - but very high prices.

The options in either case are limited. In the short run, you can release oil from strategic reserves, which only works until the reserves run out, or you can subsidize purchases for high-priority users, which only works until the money runs out. In the long run, you have to reduce waste and increase investment in alternative energy.

My objection to much of the planning that gets discussed lies in the tendency to select sets of assumptions and then micro-plan around those assumptions, which keeps planners busy and happy but rarely produces anything with much real utility in the event of crisis.

Keeping things vague imposes limitations, but in one sense it allows us to focus on the core issues and the long term policies needed to address those issues, rather than pursuing reams of micro-level response plans that provide a false sense of security.

From the security/small wars perspective, there are issues that get very little attention. If there is a major supply interruption or a long term excess of supply over demand, prices will rise until consumers with fewer means are no longer able to pay and simply drop out of the market. This will free up supply for consumers who have the ability to pay, but it will wreak political havoc in 3rd world oil consuming nations, many of which (Pakistan, for example) are significant players in current and potential conflicts. Of the 47 poorest countries on the planet, 38 are net importers of oil, and 25 of those are completely dependent on imports. We can spend all the time we like dissecting the impact of $150/bbl oil on the US economy, but the reality is that we would hurt but we would survive - in fact in the long term it might be beneficial, as we'd be forced to make adaptive changes that we should have made already. The security implications of complete political and economic collapse in a significant number of oil importing developing nations are likely to pose a thornier challenge, at least in terms of the small wars discussion.

PS: Again on China...

Some analysts see China's willingness to invest in new production in politically unstable nations as a threat, again in the "they're locking up the oil" mode. China's willingness to invest in, say, Iran or Sudan is inconvenient in the sense that it dilutes the impact of economic sanctions and other attempts to use economic activity to force policy changes. Purely in terms of energy supply, though, the Chinese do us a huge favor when they make these investments. They put money in where our companies never would, bringing new oil onto the market and reducing their own dependence on traditional suppliers. That benefits us as much as it benefits them... in some ways more, as they're the ones accepting the political risks of potential lost investments.