The Scourge of Peak Oil

The scourge of 'peak oil' - Features - Al Jazeera English

An interesting article from Al-Jazeera on peak oil.  The fact that we, humanity, are coming to the peak in oil production worldwide is not surprising to me.  What makes this article interesting, though, are the sections that describe how lifestyles, especially in Western countries are going to change.  Some excerpts:

Whipple is blunt about what life will look like in a post-peak oil world.

"You're going to see major changes in industrial civilisation," he said, adding that he expects oil to once again approach $150 per barrel in the next 18 months. "In the US, where we aren't used to paying $10 for a gallon of gas like they do in Germany, that [$150 per barrel of oil] will really slow things down."

He believes discretionary driving will basically stop, and added: "Anything with a parking lot out front is going to be in trouble."

...

"It [peak oil] is a crisis in the sense that someone is going to have to change their expectations about mobility, and the idea that anyone can go anywhere is unlikely to continue. Sooner or later, people are going to start wondering how they will get from place to place without their cars."

Due to rising fuel costs, Perl sees flying becoming less of an option for the global population.

"I tell people to go to their favourite travel website like Expedia, and pick your destination and dates, and hit the fare selector for first class, because that's the price it will be in the future for travelling. And ask yourself if you will make the trip. Flying cheap will no longer exist as an option."

...

Professor Michael Bomford, a research scientist at Kentucky State University, said that, in the US, far more energy is used when food leaves the farm than the amount of energy required to grow it.

"The long supply chain with food makes consumers particularly vulnerable to spikes in energy prices," Bomford told Al Jazeera.

Evidence of this is clear.

On June 23 French President Nicolas Sarkozy urged world leaders to take action against the "plague" of food price surges. World food prices have risen 37 per cent in a year, driving 44 million more people into poverty.

Wheat nearly doubled in cost during the past twelve months, as Russia and Ukraine cut exports after droughts decimated crops. The UN estimates nations will spend $1.29 trillion on food imports this year alone, making it the most money spent on imports in one year, and a 21 per cent increase over 2010.

Heinberg believes oil prices are now acting as a cap on global economic activity.

"Every time the economy starts to recover it pushes [the price of] oil up, and then the economy falters," he said, "We're damned if we do and damned if we don't. If oil price declines, it is because the economy is in the toilet. Global oil scarcity has triggered the limits to growth scenario and we've seen the last of economic growth as we know it, at least in the US."

The fact of the matter is that unconstrained capitalism as the primary worldwide business model based on continuing growth will ultimately need to be replaced by a lower-growth model that recognizes and works within the constraints provided by natural resources. This is not just an energy issue, but is also going to include issues such as food and clean water. "Business as usual" just isn't going to cut it anymore.

After Egypt, Who's Next?

Two weeks ago, I had posted on my Facebook wall a link to Dr. James Hamilton's blog post, Geopolitical Unrest and World Oil Markets. In that post Dr. Hamilton (of the University of California, San Diego) showed that there is a possible inverse relationship between a country's oil production and that country's political instability. Meaning, those countries with low levels of oil production were among the first to revolt, whereas countries with high oil production have shown greater stability. The implication is that the lack of petrodollars had not provided enough of a political safety net for the governments to cover their weak economies.

Hamilton's brief analysis covers (in the order of increasing oil production as a percentage of the world total) Lebanon (0.0%), Tunisia (0.1%), Yemen (0.3%), Sudan (0.6%), Egypt (0.8%), Libya (2.1%), Algeria (2.5%), Iraq (2.7%), Iran (4.9%), and Saudi Arabia (11.7%).

Now, if Hamilton's thesis is correct, then Egypt appears to be the last of the "low-hanging fruit" to have undergone political unrest. Theoretically, then, Libya and/or Algeria should be the next to revolt.

The potential problem with this analysis is that it doesn't explain all of the recent events in the Middle East and North Africa or the lack thereof. For example, Lebanon and Sudan have had long-standing government instability; that they should be undergoing problems now (such as the collapse of the government in Lebanon or the recent referendum in Sudan to split the country into two) are not terribly surprising given these countries' histories.

Likewise, I suspect that some countries that should have gone into turmoil may have had their chance but won't either because their societies are too stable (Morocco? Oman?) or because the state's security apparatus is too strong (Syria?).

What the professor also didn't mention was that Iran, which is second only to Saudi Arabia in oil production, already had its instability in the Green Movement protests of June 2009 that were quashed. I'm not expecting another major uprising in Iran (a la Tahrir Square) anytime soon.

What I think the protests really point out is that standards of living matter. Even more so than a lack of democracy, the economic corruption that pervades certain countries' economies is ultimately the straw that breaks the camel's back, so to speak. I say this with not only the Arab revolts currently going on in mind, but also the dissolution of the Communist bloc in Eastern Europe in 1989, which underwent similar revolutions for similar reasons. Republicans in the United States, who seem hell bent on trying to lower American standards of living, should take note of the potential consequences for their actions.

Response to George

Would reducing or eliminating America's dependence on foreign oil undercut the economic basis of Islamophobia?

It might to a degree, but not nearly to the extent that it might have if this was the mid 70s. Although I was only a teenager at the time, the mid 70s seemed to be the main era when Islamophobia was based largely on economics. The trigger event was the oil crisis of '73-'74, which awakened the Western public to both their oil dependence and the fact that Middle Eastern society (in particular) was being built upon petrodollars. This awakening brought about a number of articles that I remember reading which tended to be anti-Arab, anti-Islam. One cartoon I remember from that era showed an Arab sheikh in his thobe and kaffiyah standing on the rim of the Grand Canyon and being told by a man in a business suit behind him that "It's not for sale." (This reminds me of the late 80s, when Japanese businesses began buying up a lot of American businesses and properties, with a resultant backlash against the Japanese at that time; Michael Crichton cashed in on that xenophobia with his book (and movie), Rising Sun.)

But since the mid 70s I'd say that the economic basis for Islamophobia has dwindled fairly dramatically. American Islamophobia today tends to be rooted in a lot of other, non-economic factors (e.g., terrorist acts committed by Muslims, American military misadventures in the Middle East (Lebanon, Iraq) and Central Asia (Pakistan, Afghanistan), the Iranian hostage crisis and the dysfunctional diplomatic relationship between the US and Iran ever since, America's blind support for Israel, and the rise of a more visible, more active Muslim community, both in the U.S. and worldwide, that scares American non-Muslims both politically and religiously).

As for foreign oil, as of two years ago (June 2008, when I last wrote about this), five of the top ten countries the U.S. imported oil from were non-Muslim: Canada (who was the #1 seller of crude oil to the US at the time), Mexico, Venezuela, Angola and Ecuador). The first three of those countries provided over 44% of all the U.S.'s imported crude oil. So the U.S. is not quite as dependent upon oil from Muslim countries as perhaps they were in the past.

Personally, I don't think that, even if the U.S. didn't buy a single drop of crude oil from a Muslim country, that would stop all the Islamophobia in the U.S. Many Americans simply can't live without having someone else to hate. Some Muslims haven't helped the American (and worldwide) Muslim community with their actions, but Muslims aren't the only group currently being vilified in the U.S. at the moment. The Hispanics can attest to that.

The Deepwater Horizon Oil Spill by ASTER

On April 20, 2010, an explosion destroyed the Deepwater Horizon oil platform operating in the Gulf of Mexico 80 kilometers (50 miles) offshore, killing 11 crew members, and releasing 5,000 barrels of oil per day into the water. The huge oil slick was being carried towards the Mississippi River Delta, and was expected to reach the Louisiana, Alabama, and Mississippi shores as early as Monday, May 3. This image, from the Advanced Spaceborne Thermal Emission and Reflection Radiometer (ASTER) instrument on NASA's Terra spacecraft, was acquired May 1, 2010. It is located at 29.0 degrees north latitude, 88.3 degrees west longitude. The image covers an area of 79.1 by 103.9 kilometers (49 by 64.4 miles).

Photo credit: NASA/GSFC/METI/ERSDAC/JAROS, and U.S./Japan ASTER Science Team

But Will They? I Don't Think So.

Bill Maher on the oil spill in the Gulf of Mexico:

Every asshole who ever chanted 'Drill baby drill' should have to report to the Gulf coast today for cleanup duty

2008 Oil Reserves Analysis

The Economist had a recent graph showing oil reserves as of the end of 2008, with the number of years remaining for each country's reserves at the 2008 rate of production. I posted a similar graph from The Economist back in June 2006, so we'll do a little analysis to see how things have gone in the past three years.

First, there have been some changes in the rankings for total reserves. The top four (Saudi Arabia, Iran, Iraq and Kuwait) remain the same, but Venezuela has moved up one notch, replacing the UAE in fifth place. Russia remains at #7, but Libya has moved up to #8, replacing Kazakhstan. Numbers 10 (Nigeria), 11 (United States) and 12 (Canada) remain the same, but Qatar has moved ahead of China for 13th place. Angola comes in at #15 in the 2008 chart, up four places. Eight countries that were on the 2005 chart were omitted this time (in alphabetical order): Algeria, Azerbaijan, Brazil, India, Mexico, Norway, Oman, and Sudan).

The 2005 chart mentioned that if production were to continue at 2005's level of production, the world would have 41 years' worth of oil left. The good news is that, three years on, global supplies should actually last for another 42 years.

Doing a quick-and-dirty analysis, we can find out which countries have been winners over the past three years and which were losers. Winners are those countries whose reserves will survive longer today than they were expected to last in 2005's estimate, taking into account the three years of production that have passed. (This could happen either because more oil reserves have been proved in the past three years, because production slowed down, or both.)

In fact, all of the countries were winners, except for three; the winners being: Saudi Arabia (3.5 years), Iraq (3), Kuwait (2.6), Venezuela (30!), Russia (3.8), Libya (4.6), Nigeria (10.6), United States (3.4), Canada (12.1), Qatar (19.1), China (2.1), and Angola (2.7).

The three losers were Iran (-3.1), the UAE (-4.3), and Kazakhstan (-7.0).

The full Economist article:

Although the price of oil peaked at $147 a barrel in 2008, the world’s proven oil reserves—those that are known and recoverable with existing technology—fell only slightly, to 1,258 billion barrels, according to BP, a British oil company. That is 18% higher than in 1998. OPEC tightened its grip slightly in 2008, and commands slightly more than three-quarters of proven reserves. Saudi Arabia and Iran together account for almost one-third of the total. Venezuela, with nearly 8%, has the largest share of any non-Middle Eastern country. BP reckons that if the world continues to produce oil at the same rate as last year, global supplies will last another 42 years, even if no more oil reserves are found.

Links for 1 June 2009

I've been debating whether to continue the Links series of posts, either in its current format (published primarily on weekdays) or in an alternative format (e.g., weekly, rotating, sans the Politics section or American politics). While I won't stop reading the various blogs and websites that I link to, the actual writing of the Links posts takes a little longer than I would like. Suggestions? Thumbs up? Thumbs down?)

Politics:
Dr George Tiller shot to death at Wichita church (By now you've probably heard about the Kansan abortion doctor who was murdered in a church Sunday. This is one of the early reports. Other links you might find of interest include Bill O'Reilly has Dr. George Tiller's blood on his well-stained hands, Operation Rescue's Randall Terry Is Sorry Tiller Didn't Get Proper Trial And Execution, and Operation Rescue Distances Itself From Roeder’s Activities On Behalf Of The Group (sorry, the blood doesn't wash off your hands that easily). )

Lindsey Graham Says Sotomayor Is Not A Racist But Should Apologize Anyway (Sometimes I think of doing an intelligence index for Republicans; say, start at 100 and then add or subtract points based on any smart or (much more likely) stupid things Republicans say publicly. If we started today, Lindsey Graham would take the Republicans down to 99 already.)

Pressing China With A Nuclear Japan?

Gen. Ricardo Sanchez calls for war crimes truth commission.

Obama Administration Files Petition To Block Uighurs From Entering U.S., Praises Gitmo Conditions (Ridiculous!)


Economics:
What to Do Now with $50,000 Cash? ("If you have USD $50,000 in cash, what do you actually do with the money now? It is probably different by age group, but does one buy Ford at $2/share, swiss francs, some gold?")

Supply, demand, and the price of oil

Guest Blog: Japan's first trade deficit in 28 years

The View from the 23rd Century (This was a rather interesting column, looking at some of the ideas floating around in the field of growth economics and applying a Star Trek-twist to them. Some of the essay is "old" in the respect that the notion of "bits and atoms" has been talked about for a few years now. However, the basic idea of the essay is sound: growth in developed economies is strongest and can be very long lasting when it's based on knowledge ("bits"), with government legislation and spending often the key to moving the knowledge acquisition forward.)

"Incarceration as a Labor Market Outcome" (Although I've been looking at unemployment statistics for a few months now, the incorporation of incarceration rates into the analysis wass a new idea for me.)


Business:
At Harvard, Some Students Are Taking an M.B.A. Honor Oath (As an MBA who's Muslim, I find this type of oath a day late and a dollar short. I think it really speaks volumes about the lack of values inherent in Western society, especially within the business sub-culture.)


Islam/Muslim Blogs:
Jesus (AS) in Islam (Austrolabe finally came back online after a five-month hiatus with a link to a documentary on the Muslim view about Jesus (pbuh).)

Al-Muhajiroun sent packing


Miscellaneous:
Alien reboot, a prequel, is confirmed! (The Scott brothers, Ridley and Tony, are going to make an Alien prequel.)

Links for 13 May 2009

Politics:
The Daily Show: Excuse Me Your Dick is Out

The Daily Show: Bill Bennett Finds Comedians More Offensive Than Waterboarding

Detainee-abuse photos about to be released, Fox's Smith and Herridge report (Abu Ghraib 2?)

Bristol Palin Has Miraculously Transformed Herself Into the Abstinence Fairy!

Colbert uncovers an Alpha Dog counting gonad wrinkles in Montana (Perhaps the dumbest person ever to try to get out of jury duty.)

Liz Cheney on waterboarding: It's not torture, and besides, the end justifies the means (You'd think some people would get the hint and lie low somewhere. Antarctica, maybe?)

Sometimes a cigar is just a cigar

Feingold says Cheney is wrong: ‘Nothing I have seen’ in the CIA memos proves torture was necessary.

Cheney: For diplomacy to work, U.S. must threaten to bomb Iran. (The man's a madman.)

Democratic Sen. Arlen Specter to speak at ‘anti-Islamist’ conference. (The man's a DINO.)

‘Smokey’ Joe Barton: Regulating CO2 Could ‘Close Down The New York And Boston Marathons’ (Remember, kids: If you're the dumbest one in your class, you can still become a Republican politician!)

Wilkerson on Cheney: He's Destroying What's Left of the Republican Party ("He's destroying what's left of the Republican party. I think the latest polls show we're down to 21% of Americans who identify as Republicans. ... I suspect that if Cheney continues it will be down in the low teens. He's destroying the party. There needs to be someone with some ahhh.. as we say in the Army some intestinal fortitudes, some guts who steps forward and tells this man to go home and shut up.")


Economics:
Tracking the recession

De-globalization and Development

Energy Update


Islam/Muslim Blogs:
Yusuf Plays First U.S. Gig In Over 30 Years

Bruthaz of Blogistan (Thanks for the link!)

Richard Pryor As President (Does the younger generation even know who Richard Pryor was?)

Busy (Take your time, dude. Baby and momma come first. Love the pic!)


Miscellaneous:
Rose is Rose

Digitigrade leg extensions will make you taller and let you walk like an animal (This one is very odd; be sure to watch the video.)

Harlan Ellison Rejects Hometown Prize (Good for him: "According to Cleveland.com, the author was offended that he would have to pay his expenses for the trip to the ceremony, apparently calling the award "a fraud and a sham." ... [S]ome members said they had never heard of Ellison, who will be 75 this month, Roberts said. The jury voted to give Ellison the lifetime achievement award anyway.")

Links for 12 May 2009

Politics:
Jesse Ventura: You Give Me a Water Board, Dick Cheney and One Hour, and I'll Have Him Confess to the Sharon Tate Murders (This is the sort of straight talk one wishes for in politicians, which every serving politician runs away in fear from. There are some very classic lines in here: on W's intelligence (or the lack thereof), on Dick Cheney, on Colin Powell, on waterboarding.)

Chris Matthews Slams Harold Ford for "Cheney Talk" ("With Democrats like these, who needs Republicans?")

Wingnuttery of the Week: Stossel says we should eat endangered species if we want to save them (Also, be sure to check out the killer whale video!)

Naturalized Citizens Are Reshaping California Politics ("The new citizens are reshaping California's electorate and are likely to reorder the state's policy priorities, some political analysts predict. Several polls show that Latinos and Asians are more supportive than whites of public investments and broad services, even if they require higher taxes.")

Gov. Perdue: Georgia Can’t Afford Supply-Side Economics During The Recession

Clinton defends the U.N.: ‘If we didn’t have a United Nations, we’d have to invent one.’

Economics:
Rig Counts Still Falling ("In more bearish news for the oil market, rig counts as compiled by Baker Hughes are continuing to fall across the world, implying a radical investment pullback in future production — ultimately a bullish factor further down the line." In other words, expect higher oil prices in the future as production decreases.)

Islam/Muslim Blogs:
KFC and the BNP (More Islamophobic "outrage" as eight London KFC restaurants start serving halal chicken.)

Mohammad (Flower Calligraphy Noor Deen) (This is another Muslim blog that I recently added to my RSS reader. This revert to Islam is a very talented artist!)

Miscellaneous:
Forty Thousand Meteor Origins Across the Sky

W: As In WTF (Such long fingers you have, dear!)

Sci Fi Moms, Vol. 5

Links for 10 May 2009

Happy Mothers Day!

Politics:
Texas is charging rape victims who cooperate with the police. (Absolutely ridiculous. "CNN reports that Texas hospitals are charging women who have been raped thousands of dollars for their rape kits that are collected by police as part of their investigations. According to CNN, Texas’s crime victim compensation fund consistently has a surplus and could likely cover these expenses.")

U.S. soldiers, attacked, kill a 12-year-old Iraqi boy (Absolutely ridiculous. The boy is found with the equivalent of less than US$9 in his hands, and the US military concludes that "...insurgents are paying children to conduct these attacks or assist the attackers in some capacity, undoubtedly placing the children in harm's way." Eyewitnesses, however, say that the boy "...was standing by the side of the road selling fruit juice - a common practice in Iraq -- and had nothing to do with the attack. Good job, US Army! Shoot first, ask questions later! Child killers!)


Economics:
Oil Prices

Three Pictures from the April Employment Situation (Menzie Chinn on April's employment statistics.)


Islam/Muslim Blogs:
Islamophobia (David Sanger's review of Juan Cole's book, Engaging the Muslim World, in the New York Times Sunday Book Review. Generally speaking, a positive review; however, Sanger stumbles badly when he says that the US has troops around the Afghan/Pakistan border "to stop radical groups from taking over either state." What? The Taliban wasn't a radical group?)

Lest You Forgot... (This is one of the newer blogs in my RSS reader; the posting is done erratically, but the writing is well worth reading.)

Scaremongering over Muslim demographics (Indigo Jo on the Muslim Demographics video; I must say I was a little surprised he didn't link my post to his essay.)


Miscellaneous:
The American Indian Give-Away (Very nice diary over at Street Prophets about the Native American Indian practice of "give-aways." Very much worth reading.)

Luann (The comic strip.)

Dilbert (The end of capitalism.)

Petroleum and Natural Gas Proved Reserves, 2009, Top 10

This is an annual post; the data is only updated annually. For the 2008 data, please click here.

The Energy Information Administration, a department of the U.S. Department of Energy, has recently released the January 1, 2009 proved reserves for petroleum and natural gas. Proved reserves are the amount of oil and gas in the ground that is "reasonably certain" to be extracted using current technology at current prices. The following are lists of the top ten countries for petroleum and natural gas proved reserves, with their quantities and percentage of the world total for 2009:

Petroleum - Billion Barrels
1. Saudi Arabia - 266.710 (19.87%)
2. Canada - 178.092 (13.27%)
3. Iran - 136.150 (10.14%)
4. Iraq - 115.000 (8.57%)
5. Kuwait - 104.000 (7.75%)
6. Venezuela - 99.377 (7.40%)
7. United Arab Emirates - 97.800 (7.29%)
8. Russian Federation - 60.000 (4.47%)
9. Libya - 43.660 (3.25%)
10. Nigeria - 36.220 (2.70%)

Notes:

• The world total of proved reserves is 1,342.207 billion barrels of petroleum, an increase of 10.164 billion barrels over 2008's total (a 0.76% increase).
  
• The total of the top ten countries makes up 84.71% of the world's proved reserves.
  
• Venezuela was the only country to move up in the rankings, having placed seventh in 2008; the United Arab Emirates dropped one place, to seventh.
  
• Canada's proved reserves are estimated to be 5.4 billion barrels of conventional crude oil and 173.2 billion barrels of oil sands reserves. (Oil sands are much more costly to refine than conventional crude oil.)
  
• Two countries had singificant increases in their amounts of crude oil proved reserves in 2008: Venezuela, with an increase of 12.342 billion barrels, and Libya, with an increase of 2.196 billion barrels. Ten other countries also had increases in their proved reserves as well; however, the highest amount of any of the ten was 442 million barrels (Brazil).
  
• Two countries had significant depletions in their amounts of crude oil proved reserves in 2008: Iran, with a decrease of 2.250 billion barrels, and Mexico, with a decrease of 1.149 billion barrels. Thirteen other countries also had decreases in their proved reserves.

Natural Gas - Trillion Cubic Feet
1. Russian Federation - 1,680.000 (26.86%)
2. Iran - 991.600 (15.85%)
3. Qatar - 891.945 (14.26%)
4. Saudi Arabia - 258.470 (4.13%)
5. United States - 237.726 (3.80%)
6. United Arab Emirates - 214.400 (3.43%)
7. Nigeria - 184.160 (2.94%)
8. Venezuela - 170.920 (2.73%)
9. Algeria - 159.000 (2.54%)
10. Iraq - 111.940 (1.79%)

Notes:

• The world total of proved reserves is 6,254.364 trillion cubic feet of natural gas, an increase of 42.029 trillion cubic feet (a 0.68% increase). (I've noted a discrepancy in the difference between 2008 and 2009, coming up with an increase of 41.714 trillion cubic feet, a difference of 0.315 trillion cubic feet.)
  
• The total of the top ten countries makes up 78.35% of the world's proved reserves.
  
• There were no changes in the top ten rankings.
  
• Twelve countries had increases in their total proved reserves in 2008, for a total of 83.968 trillion cubic feet; however, this was partially offset by decreases in a total of fourteen countries, with depletions of 42.254 trillion cubic feet.

Why Oil Prices Dropped Recently

Rasheed Moore asked over at Tariq Nelson's blog, "How do oil prices just suddenly drop a dollar a gallon when our economic crisis hits?"

Because everyone stopped driving.

Not really, of course, but the trends against driving have gained the upper hand in recent months, which has caused the demand for oil (and gasoline) to drop. Several suggested readings:

James Hamilton at Econbrowser does a monthly post showing US auto sales. The most recent post (for October sales) shows that US-manufactured car sales are down 27% from a year ago, US-manufactured light truck sales (including SUVs) are down 40%. GM's chief sales analyst: "Clearly we're in a dire situation."

The Federal Highway Administration's (FHA) Travel Trends (August 2008 - most recent month available) - In the 12-month moving average, 2008 has the fewest amount of vehicle miles driven since 2003. The peak year was 2007. Most people aren't driving as much as they used to.

In my original response, I linked to an FHA graph showing the 12-month moving average since 1983 to make clear the drop in the number of vehicle miles traveled within the US. The original FHA graph is rather difficult to read, so I've made a new graph, below, showing the same data:


If it makes you feel any better, The Economist is reporting that oil prices may be going back up to around $150 or so by 2010.

China Beating the US in the Global Oil Game

A very interesting article at Money Morning about how China is beating the United States in the global oil game. (Actually, The Economist tackled the larger issue of China's thirst for natural resources and how they're going about getting them, particularly in Africa, in a noteworthy special report back in March.) Below are some of the article's highlights:

While this deal, on its face, appears to be just another global oil-services contract, it’s actually a very significant development in the hunt for long-term energy supplies. In fact, it actually demonstrates that – when it comes to nailing down those long-term oil supplies – China is an expert, and is playing a very deep game. And the outcome of that game will certainly have substantial long-term implications for consumers and investors both here in the United States, and in markets abroad. Here’s why:

With estimated reserves of 115 billion barrels, Iraq is tied with Iran for the world’s No. 2 position, trailing Saudi Arabia, which has estimated reserves of 264 billion barrels, according to estimates from the Energy Information Administration .

In a country where electricity is in short supply, the oil produced from the Ahdab Oil Field will help fuel a planned power plant that would be one of the largest in Iraq. By helping Iraq with this key initiative, China can expect to gain a solid foothold in one of the most oil-rich nations in the world, analysts say.

At the end of the day, the deal clearly highlights something that most U.S. investors haven’t focused on yet – namely that the eventual winners in this game may not be such well-known giants as Chevron Corp. (CVX), ExxonMobil Corp. (XOM), or other household names. Deals like this one and the host of others that are undoubtedly close behind suggest that tomorrow’s winners may have names most English-speaking investors can’t pronounce, since they’ll be distinctly Arabic or Chinese in nature.

...

While China won’t participate in the profits from the oil it helps pump, it is shrewd enough to realize there will be long-term benefits. Analysts who see the bigger picture here agree with our view.

“There are some political profits for China,” Ibrahim Bahr al-Ulum, a former Iraqi oil minister, told The Times. “They need access to Iraq, and when they need oil, at least the Iraqi people will feel that China has done something for them.”

...

By invading Iraq, the United States dealt China’s central planning commission an embarrassing wakeup call when the second Gulf War summarily wiped out China’s oil interests in Iraq.

When that happened, China’s central planners realized two things:

The status quo in the global oil game had changed.

And China’s double-digit economic miracle could not be sustained with only a few oil suppliers.

What China fears most is that there will not be enough oil to go around in the very near future and that a U.S.-dominated supply chain could effectively “strangle” China’s growth.

So, it has done what the United States and other great powers have done at other times in history and gone on a buying spree from Darfur to Peru that’s turned heads and ruffled feathers all across the world.

What’s been especially frustrating for hapless Western leaders who do not understand that their actions caused this in the first place, is that China’s not afraid to do business with rogue nations like Iran, Sudan and Burma. It has even gotten chummy with Venezuela and Russia – much to the consternation of our present administration.

It’s a virtual certainty that China will maintain this policy going forward. My contacts in China and Africa have told me point blank that China’s leaders “don’t care about human rights or nukes or hostile governments. What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

So, in as much as the U.S. media has dismissed this deal as only one in a long string of recent Chinese oil purchases, it’s arguably the most important deal yet. The reason: It suggests that China will go to extraordinary lengths to obtain the oil it wants and needs.

To add to its stable of captive oil suppliers, China will pay far more money, endure limitless criticism for ignoring human-rights issues and endure harsher business conditions than our companies can or will undertake. While U.S. firms must worry about sanctions, bad publicity or simply security, China worries about one thing, and one thing only – getting oil.

HT: Informed Comment

The More Things Change... Sarah Palin and Petroleum Export Bans

The McCain/Palin strategy on economic talking points appears to be one of turning molehills into mountains: focusing on rather small issues and blowing them up dramatically in the hope that most people will take the Republicans' word for it. However, as Economist's View pointed out the other day, issues like the amount of budgetary earmarks may sound like a lot of money, but they constitute less than one percent of the federal budget. Likewise, the idea that we can start offshore drilling for oil now and that it will help us in any way today is completely bogus. Americans are being sold a bill of goods by the Republicans, but many people don't care. P.T. Barnum knew the American attitude all too well. The more things change...

Now there's a new issue where Sarah Palin shows her "expertise," that of petroleum export bans:

Of course, it's a fungible commodity and they don't flag, you know, the molecules, where it's going and where it's not. But in the sense of the Congress today, they know that there are very, very hungry domestic markets that need that oil first. So, I believe that what Congress is going to do, also, is not to allow the export bans to such a degree that it's Americans who get stuck holding the bag without the energy source that is produced here, pumped here. It's got to flow into our domestic markets first.

Oh, dear! We Americans are exporting our own oil to other countries when we need it first. Surprisingly enough, that's true. Considering the ferocious appetite Americans have for petroleum, one would think that all domestically-produced petroleum would never be exported outside of the country, but it does. OK, so how much is exported?


If you look at the EIA's Energy Flow chart [pdf] above, you'll see that, in 2007, the US produced 10.80 quadrillion BTUs (QBTU) of its own crude oil, imported 28.70 QBTUs of petroleum and exported 2.93 QBTUs of petroleum. So, 2.93/39.50 = 7.4%. That's how much oil is being exported out of the country. Seven percent.

Let's get into the nitty-gritty even further. The seven percent above includes both crude oil and other petroleum products. However, if you look at the US imports and exports of crude oil and other petroleum products, you'll see that only 26,000 barrels per day were exported (as of this writing) compared with the 12,498,000 barrels per day that were both produced domestically and imported into the U.S. That's a grand total of 0.2% of the daily supply.

In principle, I don't have a problem with the U.S. setting up an export ban on domestically-produced petroleum, although there may be some very good reasons why that oil is being exported to begin with that are not being addressed by the Republicans. But what I do want to point out, yet again, is that this is a very small issue. Crude oil exports make up a tiny, tiny, tiny fraction of the total amount of crude oil that America uses on a daily basis. But Republicans would rather focus on the inconsequential than deal with the more serious economic matters at hand.

Economist's View: John McCain's "Big" Economic Plans

Classic. You're a damn fool if you believe anything John McCain says about the economy. From Economist's View:

Here's John McCain's big plan for the budget: make a whole lot of noise about eliminating of the piece of the budget pie representing earmarks (and remember that most earmarks simply mandate where monies will be spent, they don't create any new spending):

[Note: The OMB estimates earmarks to be 16.9 billion in 2008. Current federal expenditures for 2008 are not yet available, so the chart uses the 2007 value of 2880.5 billion from the BEA (the ratio is approximately one half percent, i.e. 0.59%). Since federal expenditures for 2008 will exceed those of 2007, this means that the area for earmarks shown in the diagram is overestimated, i.e. it is larger than the true value. The NY Times also notes that "earmarks ... make up less than 1% of the federal budget."].

All the recent controversy over McCain lying about Palin's earmark requests, as he did most recently on The View, is noteworthy for what is says about McCain's (lack of) character, but more generally it is misdirecting us from more important issues. Earmarks are only a minor part of the overall budget, and issues such as health care reform are much more important since rising health care costs will absolutely dwarf any savings from earmarks.

Here's the centerpiece of McCain's economic plan: drill for oil, then pretend like it will help at the pump:


[via]
I can't even see the sliver of yellow until after 2015, and even after that it's not much of a contribution. That's supposed to lower gas prices?

With such a solid foundation for the policy proposals - a couple of slivers of pie - I can't imagine why the McCain campaign would resort to lies, deceptions, misdirection, and misleading characterizations to sell these "big" plans.

Update: I've expanded further on this thought with my post, The More Things Change... Sarah Palin and Petroleum Export Bans.

Foreign Policy: Thomas Friedman’s Plan for a Hot, Flat, and Crowded World

One other article I found of interest today, a short interview by Foreign Policy magazine with Tom Friedman, the NY Times columnist and author. Tom is coming out with a new book, and I thought three sections of the interview were worth bringing some more exposure: on American oil "independence" and offshore drilling, on Tom's vision of a "green revolution," and a brief discussion about the possibility of China going green before the U.S. The entire article can be read here.

BTW, that "drill, drill, drill" quotation is a classic: When I hear McCain pounding the table for “drill, drill, drill,” it reminds me of someone pounding the table for IBM Selectric typewriters on the eve of the IT revolution.

Foreign Policy: In his speech to the Democratic National Convention last Thursday, U.S. Presidential candidate Sen. Barack Obama promised, “In 10 years, we will finally end our dependence on oil from the Middle East.” Is that even feasible? Does anyone you talk to believe that’s doable?

Thomas Friedman: Well, if you just talked about oil imports from the Middle East, I think it is feasible. I don’t know exactly how he would want to get there, but I think that it is a feasible goal if you’re just talking about the percentage of our oil that comes from the Middle East.

FP: And what about drilling? Republican presidential candidate Sen. John McCain, his running mate Gov. Sarah Palin, and President George W. Bush are implying that lifting environmental restrictions on drilling is the way to promote energy independence.

TF: Well, I think it’s patent nonsense. No one believes that somehow offshore, there’s enough oil in any near term and even the long term to provide us oil independence. It’s the wrong approach because in a world that’s hot, flat, and crowded, fossil fuels—and particularly crude oil—are going to be expensive and exhausting. Therefore the focus should be on the next great global industry: clean energy technology. When I hear McCain pounding the table for “drill, drill, drill,” it reminds me of someone pounding the table for IBM Selectric typewriters on the eve of the IT revolution.

I’m not against offshore drilling, by the way, because I believe the technology and the safety has improved far beyond where it was back in the 70s, 80s, and 90s, even. What I’m against is making it the centerpiece of our energy policy. If all McCain said was, “Let’s drill, but let’s also throw everything into innovating the next generation of clean-energy technologies,” I’d say, “You’ve got it exactly right, pal.”

FP: Your new book is called Hot, Flat, and Crowded: Why We Need a Green Revolution — and How It Can Renew America. What do you mean by a “green revolution” and how do we get there from here?

TF: The green revolution is about how we produce abundant, cheap, clean, reliable electrons, which are the answer to the big problems we face in the world today. I would point to five problems, and they’re all related: Energy and resource supply and demand, petrodictatorship, climate change, biodiversity loss, and energy poverty. They all have one solution: abundant, cheap, clean, reliable electrons. The search for and the discovery of a source of those electrons is going to be the next great global industry. And I think the country that mounts a revolution to be the leader of that industry is going to be a country whose standard of living is going to improve, whose respect in the world is going to improve, whose air is going to improve, whose innovation is going to improve, and whose national security is going to improve. That’s what this book is about.
Click Here!

I want a green-energy bubble. I want so many people throwing crazy dollars at every idea, in every garage, that we have 100,000 people trying 100,000 things, five of which might work, and two might be the next green Google. But I don’t want a Manhattan Project of 12 people in Los Alamos. I want it to be like the IT revolution: everyone becoming a programmer. Only in this case, it’s everyone becoming a green innovator. What IT was to the 80s and 90s, ET, energy technology, will be to the early 21st century.

FP: What conditions don’t exist right now that could create this bubble?

TF: Three things. One is a price on carbon, a fixed, durable price signal that says, “Carbon is always going to be this price.” Let’s just use a simple example: We put a floor under the price of crude oil that says, “Oil simply will not fall below $110 a barrel. If it does, we’ll tax it up.”

Second, we need to change the bargain we have with our electric and natural gas power utilities. Your dad was right when he came into your room and you’d left the lights on and he said, “What, do you own stock in the utility company?” He was right, because the more you left your lights on, the more money the utility made. And we need to change that bargain—this is already going on in California—so that utilities are paid by how much energy they help you save, not by how much energy they help you consume.

And third, we need a national renewable portfolio standard that says to every utility, “By 2025, you need to produce 30 percent of your electricity by renewable power: wind, solar, biomass, hydro, you name it.”

...

FP: You went to China for the Olympic Games, and I know you’ve been there many times in the past. Do you think China is serious about going green? Is China going to have a green revolution before the United States does?

TF: Every time I go to China, as I say in the book, it always strikes me that people speak with greater ease and breathe with greater difficulty. As the country grows, it gets more integrated with the world, standards of living rise, and people are able to move more and have more personal freedom. I don’t want to exaggerate it, but clearly it’s a more open place.

So, they speak with greater ease but they breathe with greater difficulty. And that’s a real tension. Right now, if you said, “Tom, snapshot today: Where’s China at? OK, choice: More growth or less pollution?” They’re going to go for more growth. Look what happened after the Olympics. They cleaned up Beijing for two weeks by shutting down factories and limiting driving. But as soon as the Olympics were over, they went back to the old system.

But you’re also getting a transition. You’re getting the birth of wind power and solar companies in China, so they’re seeing the market potential. And you’re seeing the rise of an environmental consciousness. The inertia and the momentum of the old, pure GDP system is much stronger than the green GDP system, but there is now a competition between the two.

China is hiding behind the United States, saying, “If the Americans aren’t going to do it, why should we?” When we move they will move, because we define modernity for them. They’ve copied us: our highways, our cars—the whole thing. And when we change, they will change.

The Economist: The Future of Energy

I've been having a nice conversation with Terry, who is justifiably concerned with the amount of oil the U.S. has been importing. He mentioned recently that he believes in our pursuit of alternatives, and I wanted to let him (and others) know that this week's Economist magazine has a special report (nine articles) on the future of energy, which focuses primarily on prospects for various alternative energies. Below is a listing of links to all of the articles.

The Power and the Glory (energy alternatives)
Trade Winds (wind power)
Dig Deep (carbon storage)
Another Silicon Valley? (solar energy)
Beneath Your Feet (geothermal generation)
Grow Your Own (biofuels)
The End of the Petrolhead (tomorrow's cars)
Life After Death (nuclear energy)
Flights of Fancy (energy's future)

ANWR: Too Little, Too Late

Source: Wikipedia

Based on some of the comments I've received recently, there seems to be some resistance to the idea that American oil production can be increased and gasoline prices lowered if only the U.S. will drill for more oil in various restricted areas, such as offshore and in the Arctic National Wildlife Refuge (ANWR).

This ain't gonna happen, folks.

Let's take the case of ANWR:

In May of 2008 the Energy Information Administration released the following report:

"The opening of the ANWR 1002 Area to oil and natural gas development is projected to increase domestic crude oil production starting in 2018. In the mean ANWR oil resource case, additional oil production resulting from the opening of ANWR reaches 780,000 barrels per day in 2027 and then declines to 710,000 barrels per day in 2030. In the low and high ANWR oil resource cases, additional oil production resulting from the opening of ANWR peaks in 2028 at 510,000 and 1.45 million barrels per day, respectively. Between 2018 and 2030, cumulative additional oil production is 2.6 billion barrels for the mean oil resource case, while the low and high resource cases project a cumulative additional oil production of 1.9 and 4.3 billion barrels, respectively." [Source]

The report also states:

"Additional oil production resulting from the opening of ANWR would be only a small portion of total world oil production, and would likely be offset in part by somewhat lower production outside the United States. The opening of ANWR is projected to have its largest oil price reduction impacts as follows: a reduction in low-sulfur, light crude oil prices of $0.41 per barrel (2006 dollars) in 2026 for the low oil resource case, $0.75 per barrel in 2025 for the mean oil resource case, and $1.44 per barrel in 2027 for the high oil resource case, relative to the reference case." [Source; page 6]

For the average case, drilling in ANWR would reduce crude oil by 75 cents, in 2025. The total production from ANWR would be between 0.4 and 1.2 percent of total world oil consumption in 2030. [Source; page 17]

So, let's review the facts. If the U.S. were to begin drilling for oil in ANWR today, the earliest it would start to increase American oil production is ten years from now. This isn't some overnight cure or even something that will help us within a year or two. This is a "solution" that will take a DECADE to implement. What are you going to do in the meantime? Your gas prices won't go down just because ANWR was opened up to drilling.

Then, in the best case scenario, oil pumped out of ANWR amounts to 1.45 million barrels per day. Sounds like a lot; it isn't. For 2007, the Energy Information Administration (EIA) estimated that a total of 82.501 million barrels of crude oil were pumped out of the earth every day. 1.45 million barrels compared to 82.501 million barrels is 1.76%. DROP IN THE F****** BUCKET, PEOPLE!

How much will oil prices drop when ANWR finally goes on line? At best, a mere $1.44 per barrel (in 2006 dollars) in 2027, nineteen years from now. Right now, as I write this, West Texas Intermediate (WTI) crude oil is selling for $134.62. If we could apply that best case scenario of ANWR oil to current oil prices, then WTI oil might be down to $133.18 (at best). Wow, an astounding drop of... 1.07%. Such a bargain! NOT!

ANWR will not solve America's oil problems. Offshore oil drilling will not solve America's oil problems. It's all too little, too late. Only a massive conservation effort in which crude oil consumption per person goes down by a huge level (at a minimum 50%) is going to help solve America's oil problems.

Until then, you're screwed.

Robert Reich: "No" to Further Offshore Drilling

The other day, in my update about how much oil the U.S. imports, I wrote:

...[S]hame on you ... if you believe either McCain or Cheney that drilling for oil offshore or up in Alaska will make a significant difference. Two reasons: "drop in the bucket" and "long-term projects," neither of which will lower your gas prices.

On the same day that I wrote the above, Robert Reich, former Secretary of Labor during the Clinton administration and currently a professor at the University of California (and a blogger), had a similar post on why the U.S. should not do further offshore drilling for oil. His first and second reasons are identical to what I wrote above, just further developed:

First, the crude oil market is global. Oil companies sell all over the world. The price of crude is established by global supply and demand. So even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (that sum is the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge.

Second, whatever impact such drilling might have would occur far in the future anyway. Oil isn't just waiting there to be pumped out of the earth. Exploration takes time. Erecting drilling equipment takes time. Getting the oil out takes time. Turning crude into various oil products takes time. According the the federal energy agency, if we opening drilling where drilling is now banned, there'd be no significant impact on domestic crude and natural gas production until 2030.

Third, oil companies already hold a significant number of leases on federal lands and offshore seabeds where they are now allowed to drill, and which they have not yet fully explored. Why then would they seek more drilling rights? Because they want more leases now, when the Bushies are still in office. Ownership of these parcels would serve to to pump up their balance sheets even if no oil is pumped.

Last but by no means least, environmental risks are still significant.

HT: Economist's View

Update: How Much Oil Does America Import?

Currently, my most popular blog post by far is How Much Oil Does America Import?, written back in May 2006, two years ago. I thought it was time to update the figures and see how the U.S. is doing since I first wrote that post.

The U.S. gets its oil from two sources: either it pumps its own oil, called "Field Production" by the Department of Energy, or it imports oil from other countries around the world. In 2000, American commercial field production made up 38.69% of the total supply of crude oil, while imports made up 60.28%. In 2005, when I wrote the last post, those same percentages were 33.67% and 65.84%, respectively. (These numbers are different from what I wrote back in 2006 as adjustments have been made to the official statistics; these types of revisions are normal for economic statistics.) In 2007 (the most recent year), the percentages were 33.72% and 66.19%, respectively. While there has been an extremely slight increase in the amount of oil pumped domestically (0.05%), imports have also increased as well. (The reason why both numbers can increase is because a third number, "supply adjustments," fell.)

In 2007, the U.S. imported a total of 3,656,170 thousand barrels. Of those 3.66 billion barrles, the U.S. imported from a total of 46 different countries. The top 5 importing countries were: Canada (18.61%), Saudi Arabia (14.50%), Mexico (14.07%), Venezuela (11.48%), and Nigeria (10.80%), for a total of 69.47% of all American imports. In contrast, imports from countries six through ten (Angola, Iraq, Algeria, Ecuador, and Kuwait) made up only 17.95% of the total; countries 11 through 46 made up the remaining 12.58%.

Looking at petroleum imports in two other ways...

In 2007, imports from OPEC countries* made up 53.85% of all U.S. imports, compared to the 46.15% from non-OPEC countries. However, this is the exception rather than the rule. Since 1993, when the Energy Information Agency (EIA) started breaking out the statistics, non-OPEC countries have been the dominant exporters ten years out of the past fifteen. The year 2007 was the first time since 2001 that OPEC countries had sold more petroleum to the U.S. than non-OPEC countries.

With respect to the Persian Gulf, those countries** only made up 21.19% of the total imports. This is down slightly, one-half percent, from my 2006 analysis. Note that the U.S. imports no oil from Iran.

Conclusions/Predictions:
Two years ago, I made four points as to how I thought things would go with respect to American oil imports and consumption. We'll look at how good or bad those predictions were:

1. American field production will probably go below 25% of its total annual supply within the next five years.

I think we can write this prediction off; I don't foresee this happening within the next three years (or perhaps even the next ten).

2. In that same time frame, imports will probably be in the high 50s percentage (perhaps 58-59%).

On the other hand, I think this prediction is very much a lock at this time. In fact, I wouldn't be surprised if this number goes back up again, remaining in the 60-65% range.

3. America will continue to seek the majority of its oil from non-OPEC countries, such as Canada and Mexico, if only to avoid being as dependent on OPEC countries as they have been in the past. However, this will probably turn out to be a pipe dream in the long run unless Canadian oil reserve estimates turn out to be near the high end. (Estimates for Canada's proven oil reserves ranges from 4.7 billion barrels (World Oil) to 14.803 billion barrels (BP Statistical Review) to 178.792 billion barrels (Oil & Gas Journal). Obviously, this extremely wide range of guesses shows that no one truly knows how much oil Canada has.)

Since I wrote this, I've gotten a better understanding with respect to Canada's oil reserves. The problem with the Canadian oil sands is that it is made up of a very dense and viscous type of petroleum called bitumen. Bitumen is like molasses at room temperature, and needs heating just to flow. (The tar that we pave roads with is bitumen.) Oil refineries are set up to process certain types of crude oils, and bitumen is normally not one of them. So, while Canada has a lot of proved oil reserves, most of it is not in the form the refineries need to produce products like gasoline. In this respect, the lower reserve amount mentioned above is probably closer to the amount of crude oil Canada actually has. In time, more refineries may convert to take advantage of the Canadian oil sands, but that will probably be a gradual process.

4. Persian Gulf oil, which has ranged between 19.81% and 28.56% of all U.S. imports since 1996, will probably continue to hover in the high teens-low 20s, despite President Bush's goal to cut American consumption of Middle Eastern oil by 75% by 2025, per the latest State of the Union address.

I don't see this forecast changing at all. What President Bush said in 2006 about cutting the amount of Middle Eastern oil America consumes was complete and utter bullshit (and shame on you if you believed him). BTW, shame on you again if you believe either McCain or Cheney that drilling for oil offshore or up in Alaska will make a significant difference. Two reasons: "drop in the bucket" and "long-term projects," neither of which will lower your gas prices. I may post on this in the near future, insha'allah, but in the meantime I recommend that you read John McCain's Oil Scam over at Informed Comment (Juan Cole), and Drilling Our Way to... by Menzie Chinn over at Econbrowser.


References:
US Crude Oil Supply and Disposition (DoE)
US Crude Oil Imports by Country of Origin (DoE)

Notes:
* OPEC countries include Algeria, Angola, Ecuador, Indonesia, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE, and Venezuela.
** Persian Gulf countries include Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates. However, Iran and Qatar export no oil to the U.S.