Lethal Trajectories (59 page)
A number of important oil and economic concepts are introduced in this chapter via a televised financial news interview with Vice-President Clayton McCarty. The following concepts are worth noting:
America’s addiction to oil:
America is addicted to oil, as evidenced by the fact that with less than 5 percent of the world’s population and 2 percent of global oil reserves, it consumes over 22 percent of the world’s oil—roughly 19 million barrels per day (MB/D) out of the 87 MB/D of current global oil production. Oil is the mother’s milk of commerce: a major fuel source for 96 percent of America’s transportation system and also the source of oil-based products for manufacturing and heating. Modern America was built on cheap and accessible energy, and its loss would create challenges never before experienced.
Peak oil production:
Oil production, from all sources, has flattened out in the 85–87 MB/D range over the past few years, despite price spikes of as high as $147 per barrel in 2008. With rising demand, crude oil shortfalls have been made up with unconventional fuels such as tar-sand oil, liquid fuels from natural gas and coal, and ethanol and other biofuels, but there are practical limits to what can be produced from these sources. Global oil production today is generated from approximately seventy thousand fields. Of these, 507 fields produce 60 percent of all conventional oil; 110 fields produce 50 percent of global supply; and 20 of these fields produce 27 percent of total supply. Sixteen of the twenty fields are now in decline, and the number of new—and smaller—discoveries required to offset diminished production from even one giant field is significant.
Declines, depletions, and discoveries:
The problem is this: a large number of giant oil fields are now in decline, and we are not finding the new giants needed to replace them. With global depletion rates from existing fields in the 5 to 7 percent range, the loss of 6 percent of the current supply of 86 MB/D each year, for example, means we have to find more than 5 MB/D of new oil
just to make good the oil that has been depleted.
Put another way, we have to find a source equivalent to one new Saudi Arabia every two years just to cover depletion rates; the amount of new oil now being discovered is nowhere near meeting this requirement. To increase
net
new production by 1 MB/D, we will need to find 6 MB/D of new oil: 5 MB/D to make up for depletion and 1 MB/D to provide a net increase. These numbers are not being reached. In fact, we now consume about four barrels of oil for every new barrel of oil we find. In essence,
we are digging into our oil savings account future to meet current needs—an unsustainable practice.
Two key metrics:
In considering future oil supply there are at least two important metrics to keep in mind:
1.Oil flow rates:
The old saying, “It’s not the size of the tank but the size of the tap that counts” says it all: we can’t afford to be mesmerized by sensational reports of giant new oil discoveries because what really counts is how much of that reserve can eventually be extracted daily at a commercially viable price once the field is fully operational. In the Arctic National Wildlife Refuge, for instance, the recoverable reserve is estimated at over ten billion barrels of oil, but the maximum flow rate might top out at about one million barrels per day after several years. Not a paltry sum, but only about 6 percent of America’s daily consumption.
2. Energy received over energy invested:
The “easy” oil has already been consumed, and new oil is far costlier to extract, refine, and use. As one measure of cost, the energy required to commercialize new oil—as well as other energy forms—has to be factored against the energy it produces, or
net
energy. An energy received over energy invested (EROEI) ratio is applied as a measure of net energy. A higher EROEI ratio equates to a favorable net energy production rate, and a lower ratio to a less favorable rate. Using this metric, oil recovered in the United States in 1930 produced EROEI ratios as high as 100:1. That ratio is more like 14:1 today. The ratio will decline further as we go into deeper and costlier waters for new oil finds. (The cost of drilling a new well in 10,000 feet of water can be $100 million or more, and one can only imagine the amount of energy required to get there.) Eventually the costs of finding and extracting new oil will exceed the commercial market value of the oil and drilling will be discontinued, not because we ran out of oil, but because it became unaffordable. This threshold is referred to as
peak production.
The prognosis:
The prognosis is grim. As global oil production declines, the alternative fuels, transportation models, and infrastructure systems needed to replace lost oil-based energy are insufficient in size and scale to make good on the shortfall. In addition to shortages, the price of oil-based energy, fueled by the immutable laws of supply and demand, will skyrocket. As greater percentages of individual discretionary income and GDP are redeployed toward oil and energy, the economic drag will stifle economic growth, exacerbate unemployment, and create a semipermanent state of economic recession and/or stagflation. This will, in turn, increase national debt loads and make it increasingly difficult for the United States to meet its future entitlement obligations. The temptation to crank up the printing press and monetize debt will be irresistible, the effect on the devalued dollar devastating.
Timetables:
Peak oil can only be corroborated by looking in the rear-view mirror. Still, crude oil production has been flat in recent years, with supply gaps made good from unconventional oil, biofuels, coal and gas liquefaction, and other sources. The economic recession of 2008 and 2009 obfuscated the supply-and-demand situation, but as the global economy improves, demand will increase and surpluses will be reduced. Some recent studies suggest that excess capacity could be taken out of the system as early as 2012, with demand outstripping supply thereafter, causing another round of economic deterioration. Whether or not OPEC producers—controlling 70 to 80 percent of known global oil reserves—will step up and finance the capital-intensive efforts needed to develop new oil fields is questionable. And yet, this is basically the hope of the Western world.
For purposes of this book, I have assumed that the oil supply/demand curve will reach equilibrium in 2012 at roughly 87 to 88 MB/D and that nominal demand thereafter will increase by 1 percent per annum while peaked supply decreases by 2 percent.
UN Security Council:
The United Nations was chartered on October 24, 1945. It has grown from fifty-one original members to the current membership of 192 nations. The key levers of power are housed in the Security Council, a body of fifteen members, ten of whom are rotating members and five permanent. The Security Council has the power to initiate peacekeeping operations, mandate cease-fires, and authorize sanctions. If any one of the five permanent members of the Security Council vetoes a proposed action, it cannot be acted upon. The permanent members are the United States, Great Britain, France, Russia, and China. There have been attempts to give Germany, Brazil, Japan, and India permanent-member status, but reforms in the UN are slow. The larger body of the UN, the General Assembly, has diluted powers. A vote of two-thirds of the membership is required to pass a major initiative, but all members have a right to address the full assembly at specified times.
The New Independence Party:
The New Independence Party of California is a fictitious party resembling that of the more moderate Independence Party of America, formed in 2007 and not to be confused with the American Independent Party. It is based on a growing trend in California toward independent voters.
Climate-change controversies:
Since the establishment of the Kyoto Protocol in 1997, the issue of climate-change—a.k.a. global warming—has become a mainstream public issue. Public interest in, acceptance of, and understanding of the issues has ebbed and flowed. It was a mainstream issue in the 2008 presidential elections and built up more steam (and opposition) in 2009 with passage of the Waxman–Markey American Clean Energy and Security Act (H.R. 2454), which brought cap and trade practices to public attention.
In late 2009 the pendulum swung in the opposite direction with three noteworthy events: 1) Politicians, particularly in the Senate, sensed a shift in public moods away from big-government solutions and failed to act on an energy and environment bill; 2) the COP-15 Conference in Copenhagen failed to muster the international support needed to toughen greenhouse gas emission standards and enforcement protocols; and 3) the International Panel on Climate-change came under heavy attack for possible research flaws in the IPCC-4 Report, the implication being that if the IPCC findings were in question, all climate science must be questionable.
The IPCC Report became a galvanizing force for those opposed to the notion of climate-change and the proactive steps needed to mitigate it. The IPCC was ill-prepared to respond to the “climate-gate” charges of bogus science leveled against it. The so-called climate hoaxers suggested the data was inconclusive and that even the scientific community was badly divided on the issue. Ergo, they claimed, we should do nothing about it until the data was all in. Public opinion polls showed that their strategy was working, at least to the extent that the public was less sure of the validity of climate-change or its prognosis.
Interestingly, climate scientists—97 percent of them firm in the belief that climate-change was happening and of significant anthropogenic origin—showed signs of organizing with a greater willingness to respond to and even challenge their critics. IPCC post-mortems also revealed that while a few small parts of the scientific process might have been marginal, the overall conclusions were in no way changed. The ensuing challenge to the scientific community to respond with new levels of transparency, more encouragement of public discourse, and greater efforts to secure better information through new satellite programs and data-processing protocols will undoubtedly have a positive effect. The climate-change trajectories portrayed in the book assume a continued deterioration along the lines projected by the overall climate science community.
Climate warnings:
Much of the climate debate today centers on the Earth’s temperature trends and the validity of the temperature-taking process. While the 1-degree-Fahrenheit increase in temperature since 1970 is significant, it might be more revealing to focus on “reading” what the Earth is telling us instead of fixating only on its temperature and surrounding processes. The composite picture is alarming and difficult to explain away as a mere cyclical aberration, a result of sunspots, or some other conjecture.
The following chart highlights just four of the more noteworthy and observable patterns and does not include such observations as changing ecosystems, loss of arable land due to desertification, depletion of carbon sinks due to deforestation, and health issues related to water and air quality or insect-borne infestations.
Climate-change and National Security:
The U.S. military and intelligence agencies take climate-change and its threat to national security very seriously. The Joint Operating Environment—2010 Report, used for military planning, lists climate-change as one of the ten trends most likely to affect the joint military forces. The CIA recently opened the Center on Climate-change and National Security to focus on climate issues and threats, and climate-change is now a regular part of the National Intelligence Estimate. A general theme is that climate-change is a
threat multiplier
that must be taken into account in all planning.
The correlation between changing climate patterns and national security includes threats to political stability in countries most susceptible to climate-change risks, notably many in Africa and Asia. Potential threats include disputes over natural resources such as freshwater and arable crop land, rising sea levels in low-lying countries such as Bangladesh, and mass migrations as people leave uninhabitable lands for new territory—often crossing territorial borders. Some examples:
The Himalayan ice melts and related floods and water shortages could be particularly devastating to Asian nations dependent on water from that range. Three of these countries, Pakistan, India, and China, have nuclear capabilities. Freshwater is also a flash point for African nations such as Darfur. Arctic ice melts and new sea lanes opened as a result—as well as previously inaccessible resources now available for seabed mining—will likely create conflicts over exclusive economic zones. Such threats clearly indicate the reasons why the military and intelligence communities take climate-change so seriously.
Mitigation vs. adaptation:
Strategies to address climate-change are often framed in the context of mitigation and adaptation actions. Mitigation is a human intervention strategy intended to proactively reduce the greenhouse gas (GHG) emission levels and to enhance carbon sinks to curtail the future rates of emission. Adaptation strategies are generally more reactive, calling for measures to adjust to rising GHG levels and their climatic effects
after
the changes have occurred.
