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Peak Oil: The Global War for Oil

by Hauke Ritz and Otto Wiesmann Wednesday, Feb. 27, 2008 at 4:59 AM
mbatko@lycos.com

Despite optimistic estimates, the market seems to accept peal oil since the rich oil companies are not investing in new refineries. The 150-year American expansion explains the military option. Speculation caused the tenfold increase of a barrel of oil from (1998) to 0 (2008).

PEAK OIL: THE GLOBAL WAR FOR OIL

By Hauke Ritz and Otto Wiesmann

[This article published in: Blatter fur deutsche und internationale Politik, July 2007 is translated from the German on the World Wide Web, http://www.blaetter.de/artikel.php?pr=261.]




Since the end of the First World War, capitalist industrialization has depended on the availability of oil. However discussions on the range of worldwide sources of oil are usually based on very optimistic estimates. These optimistic estimates are supported by the International Energy Agency (IEA) in Paris that relies on the US agency for geological studies. [1] Developments that contradict this official data can already be seen in market conduct.

The Peak Oil theory is at the center of the conflict. Peak oil or maximum production is the moment when total production of oil reaches its maximum and then constantly declines. At least since 2005 the Peak Oil theory has been considered a reality by the oil industry. This is clear in market conduct. While the markets have an information advantage, peak oil is still seen as a dubious and unproven theory in the public. This prevents the urgently necessary debate about the threatening economic and political consequences. That many geopolitical events of the last years are already effects of the imminent energy crisis is ignored.

That the Peak Oil theory underlies the oil market is clear from the investment conduct of the oil industry. The development of the market refutes the optimistic predictions of the International Energy Agency. In its 2006 World Energy Outlook, the IEA forecast that oil production would increase 50 percent in the next 23 years. If this estimate had been right, an investment boom in refineries, tanker fleets and pipelines would have been triggered. Interestingly the exact opposite happened. Hardly one market actor is now ready to build new refineries on the basis of the IEA – even though the last refinery in the US was built in 1978 and the infrastructure is already antiquated. The practiced reserve in investments in the oil infrastructure even led again and again to shortages in refinery capacities in the last years. [2] Part of the US pipeline network goes back to the 1950s and is extremely degenerate. [3] The absence of urgently necessary investments here suggests that peak oil is already anticipated by the market. Lastly, the oil corporations have not used their massively higher revenues in the last years to explore and open up new oil fields. Instead they use an ever-larger share of their profits to buy back their own shares or take over smaller competitors.

This investment conduct makes sense with peak oil theory as a basis. Since the likelihood of finding new oil fields is increasingly trifling and oil production cannot be expanded in the existing fields, the takeover of smaller oil firms can be more profitable than the ever-harder search for undiscovered oil. [4] In addition, a decline of the oil supply with simultaneously greater demand may force up the price of oil dramatically. This will lead to higher stock prices of oil firms which could explain the concentration processes in the oil industry.

On the other hand, if one takes the optimistic prognoses of the IEA as a basis, the market behavior of the oil industry is extremely irrational. However it is very rational according to the forecasts of the “Association for the Study of Peak Oil” (ASPO). The ASPO founded mainly by geologists also starts from the assumption that maximum production will be reached in 2010. [5] Thus the markets in their conduct follow the data of the ASPO.

THE COUNTDOWN RUNS

The geologists united in the ASPO assumed that the production decline after the peak will amount to two to six percent annually. Two percent is a very optimistic estimate since an increasing decline in production already occurs in particular oil production areas. Oil production in the British North Sea hit its peak in 1999 and since then has dropped around 30 percent. [6] The dependence of nearly all oil production on one-percent of all oil fields is also problematic. 75 percent of produced oil comes from this mammoth oil field. Most of these oil fields have been operating for 30 to 50 years. Nine percent of worldwide oil production comes from the three largest oil fields of the world, the so-called Giant Fields, Ghawar in Saudi Arabia, Burgani in Kuwait and Cantarell in Mexico. All these reached their maximum production around 2005. [7] Since then, the noticeable production decline has often turned out more dramatic than expected. In 2006 the oil production of the Mexican Cantarell oil field decreased eight percent. A double-digit production decline, 11.6 percent, is even forecast for 2007 with an upward tendency. Production in Ghawar also slumped eight percent within a year. [8]

Even if one starts from a moderate production decline between two and six percent, the consequences for the industrialized world will be dramatic. The capitalist economic system is programmed for constant growth. As a bicyclist can only keep his or her balance as long as the bike is moving, our economic system only remains in rhythm as long as it grows. Growth means concretely the increase of circulating money, produced goods, resource consumption, expansion of trade routes and globalization of the economy. In the preceding decades, all this was only possible on the basis of increased energy consumption. A third of this will be met with oil derivatives (35.7 percent in Germany). [9] For the transportation sector and world trade, oil is absolutely central as a natural primary source of energy. Coal has a 28 percent share and gas 22 percent in worldwide primary energy consumption. Nuclear power worldwide has never been more than ten percent of primary energy (Germany 2.5 percent, US 8.1 percent). [10] When transmission and conversion losses are deduced, the shares of coal and nuclear energy are even lower. If renewable energy outstrips nuclear power in the near future, renewable energy would still be far from replacing crude oil.

REGIONAL IMBALANCES

The decline in oil production does not affect all regions of the world with the same intensity. This is crucial for the whole problematic of peak oil. Up-and-coming threshold countries like China may be affected differently by peak oil than western countries. Since aspiring threshold countries usually use energy much more inefficiently than highly developed countries, these young economies would be strikingly impacted by a massive rise in the price of oil. On the other hand, the share of the production dependent on modern economic structures is much lower in these countries than in Europe and the US. The greater the share of the population living in traditional rustic village communities, the easier a social system can survive an energy crisis. Moreover soaring economies like China can consider the coming energy crisis in building their infrastructure and upgrade public transportation in relation to individual transportation. Because of its thinned railroad network, replacing the existing dense network of highways with a dense net of railroad lines may be a Herculean challenge for the US.

The effects of Peak Oil may be very noticeable within the West in a differentiated way. European per capita energy consumption is half the per capital American consumption. [11] This means firstly that Europe and the United States reacted differently to the oil crisis in the 1970s. While the US with the Carter doctrine made its military presence in the Middle East the essential factor of its foreign policy, Europe began to slow down the growth of energy consumption through taxation of energy. In addition, Europe is more densely populated and its trade- and travel-routes are generally shorter. Owing to the Gulf Stream, Europe has a moderate climate. In North America, the mountain chains extend from North to South and do not run from East to West as in Europe. The temperature fluctuations between summer and winter are stronger in the US where the need for energy increases for heating in the winter and cooling in the summer. Finally, the United States has outsourced a much larger share of its own industrial production to Southeast Asia. What was thought to be a competitive advantage in terms of cheap oil prices can easily prove to be a boomerang in the course of an energy crisis. With a dramatic rise in prices of oil and fuels, long transportation routes turn out to be an unproductive waste of valuable energy.

IS NATURAL GAS AN ALL-PURPOSE WEAPON?

Even if all these factors did not exist, there is a very substantial reason why the US will be affected more intensely than any other country of the world by the coming oil crisis. The simplest solution would be compensating crude oil supply shortfalls by changing over parts of the energy supply to natural gas. For decades, natural gas has been used as an energy resource. Therefore this technology was developed. Cars and trucks can also be driven with natural gas. Where shortages in heating oil occur, one can easily switch over to natural gas. Gas seems the best of all sources of energy as an oil substitute.

Natural gas has only one disadvantage. Unlike oil, it is transported almost exclusively through pipelines. Transporting natural gas over sea routes is expensive. Natural gas must be cooled to minus 161.5 degrees to bring it to a liquid form. Its volume is reduced by a factor of 600. Transported with special tankers, natural gas must be kept at a constantly low temperature. This so-called LNG (liquefied natural gas) is then unloaded at special conversion terminals and brought to a gaseous state in vaporization facilities through adjustment to the outside temperature. The whole process is extremely expensive and cost-intensive. In its transportation, 20 percent of the liquefied gas is consumed for cooling. [12]

Because of these problems, natural gas markets unlike oil markets are regional markets. As a result, we cannot speak of a maximum production for natural gas as with oil. For natural gas, the maximum production of individual continents is much more important. The largest natural gas reserves are found in Russia and Iran. Both countries together have around 45 percent of worldwide gas reserves. Rumors that both countries are pushing for a gas-OPEC have recently spread. [13] In the Euro-Asian gas market, gas consumption can increase for 20 years. [14] The possibility of compensating decreasing oil production with gas for one to two decades is opened up for Euro-Asian economic powers (like China, India and Europe). Thus gas can be an interim source of energy in transition to renewable energy.

The situation is very different for the US. The gas reserves of the North American continent are much lower than those of Euro-Asia. US gas production already reached its peak in 1973. Since then the available gas quantity could only be maintained at a level below maximum production with the help of imports from Mexico and Canada. A drop in North American gas production may be immediately imminent. [15]

While Europe, China and India can balance the faltering oil production through gas imports from Russia, Central Asia and the Middle East, the US sees itself confronted with a double energy crisis. The approaching shortfalls in oil production and the problems with gas production already marked in Mexico, Canada and the US could multiply. In addition, the production decline in natural gas could be much faster than with oil. The collapse of worldwide peak oil and the decline of North American gas production present the US with enormous problems. The result could be an unparalleled energy crisis. [16]

The energy crises of the 1970s were politically motivated and only led to limited economic recessions. In contrast, the coming energy crisis is geological and thus permanent. The US is threatened more intensely than any other economic region of the world. The simultaneous shortage of oil and gas threatens the US with a possible breakdown of its industrial infrastructure, not only with a recession.

THE MILITARY AS AN ANCHOR

It is hardly imaginable that the greatest military power of the world will actually suffer the most intensely under the coming energy crisis. Not for nothing the United States controls all the transportation routes for oil and the sea routes to the Pacific. The US has established military bases in many countries of the Middle East. After September 11, 2001, the US successfully extended its military presence in the second most important productive region for oil and gas, the area around the Caspian Sea. Up top then, this region was mainly part of the Russian sphere of influence. Today the US has bases in Kazakhstan, Kurgistan and Turkmenistan and consequently the most direct military access to the two largest remaining productive regions of the world, the Middle East and Central Asia. It would be naïve to assume the US will not use this hegemony in case of an energy crisis.

Quite the contrary. Both the Afghanistan and the Iraq war can be interpreted as preliminary decisions that the US is resolved to solve the coming energy crisis chiefly militarily. This supposition is supported by an address given by Vice-president Dick Cheney on November 15, 1999 before the Institute of Petroleum in London. He sketched the peak oil problematic and described the Middle East with two-thirds of worldwide oil reserves and the lowest production costs as the region “where the prize ultimately lies.” [17]

The Iraq war launched three years later has already cost the US more than 0 billion, an enormous sum that could have been better invested in the development and expansion of renewable energy. However this did not happen. Massive state investment projects like the Manhattan Project during the Second World War or the moon program of the 1960s have not occurred in the area of renewable energy – despite all ecological lip service of the Bush administration.

The American scholar Michael T. Klare, author of the book “Resource Wars,” [18] recently described this exclusive concentration on military measures as a crime on the young generation. The five-year occupation of Iraq has not increased the oil production of Iraq. Every attempt to secure oil militarily is condemned to fail, Klare says, since every pipeline has to be guarded with a thousand soldiers. In this way, money thrown out the window is lacking the US for developing energy forms of the future. The consequence is that no effective form of energy will be available to the young generation when the oil is exhausted.

REALITY BLINDNESS EVERYWHERE

All this raises the question why is the US fixed short-sightedly on the militarist “solution” of the energy problem. A multitude of factors came into play here. Firstly, the American economy has been in a state of constant expansion for 150 years with the exception of the worldwide economic depression of 1929, at first domestically through continually moving the border westward. When the last Indian territory was conquered, the economic expansion began in the rest of the world as a trading power and since the Second World War increasingly as an imperial power. In this way, the experience of economic and military expansion became a part of the American social model and experience of life.

In American history, there were no collapses that can be compared with the European experiences of the two world wars or the German inflation. While the “catastrophes” of the 20th century in Europe engendered a consciousness of its own weaknesses, the US in contrast is still convinced of its strength and regard even brutal military solutions as a suitable means of politics.

In the rise of the United States to an empire, two factors were central: firstly, the role of the US dollar as the world currency which produced the money-creation monopoly of the US Federal Reserve and enormous senor-advantages and secondly, control over large parts of the worldwide trade with oil, its factoring and its transportation. This combination of world currency and oil trade enabled the US to expand economically without regard to the balance of payments deficit. The history of the US –from an economic power to an empire – could actually be written as a history of oil. [19] This geopolitical dependence on oil also explains why the American elites let slip the possibility of a timely conversion to renewable energy.

Lastly, another reason for the concentration of the US on military solutions could also be that report released in February 2005 by Robert Hirsch for the US Department of Energy. This study declared that the conversion of the economic infrastructure from oil to alternative sources of energy could only be managed without supply shortfalls if the conversion begins 20 years before the maximum production. In the most favorable case, the report continued, there could be a conversion beginning ten years before the maximum production to cushion the worst consequences. [20] As explained, maximum oil production according to estimates of geologists of the ASPO could be reached in the next three years. [21] In other words, it is already too late for a harmonious transition. This tight time window could be the decisive reason why the US reacts to the problematic with military interventions.

Europe is not in a position to exalt over the failed policy of the United States. While the next war in the Middle East is already announced, Europeans still discuss the reality-fitness of the Peak Oil theory. While the US wastes its financial resources in wars, Europe squanders its intellectual resources without seeing that the crisis approaching on the horizon could easily ring in a new age of massive military confrontations.

NOTES

1 Vgl. Hauke Ritz, Die wunderbare Ölvermehrung, in: „tageszeitung“, 4.11.2005.

2 Nicole Wynands, Die Energiepreis-Krise in den USA nach Katrina und Rita, Konrad-Adenauer-Stiftung/ Außenstelle Washington 2005, S. 7.

3 „Handelsblatt“, 21.8.2006.

4 Mark Ehren, Öl-Multis mit Reserven-Problemen, vgl. www.boerse.ard.de, 5.4.2005.

5 Vgl. The Association fort he Study of Peak Oil and Gas (ASPO), Newsletter 78, 6/2007, S. 2, https:// aspo-ireland.org/Newsletter.htm.

6 „The Guardian“, 13.10.2004.

7 Vgl. Internationale Energieagentur (IEA), World Energy Outlook 2006, Summary and Conclusion; Matthew R. Simmons, Twilight in the desert. The Coming Saudi Oil Shock and the World Economy, New Jersey 2005; „Junge Welt“, 1.6.2007.

8 Thomas Black, Pemex Says Cantarell 2006 Production to Decline 8 %, www.bloomberg.com, 2.8.2006; Luke Burgess, The world’s largest Oil Field is Dying, in: „Energy and Capital“, 9.8.2006.

9 Bundesministerium für Wirtschaft und Technologie, www.bmwi.de, Rubrik „Mineralölversorgung und Energiestatistik“.

10 British Petrol (BP), Statistical Reviews of World Energy 2005 (Stand: 6/2006).

11 Werner Zittel und Jörg Schindler, Energieversorgung am Wendepunkt, Wien 2006, S. 12.

12 TU Dresden/Institut für Energietechnik, Energieversorgung. Skript der im Wintersemester 2002/03 gehaltenen Vorlesung, http://tu-dresden.de/die_tu_dresden/fakultaeten/fakultaet_maschinenwesen/ iet/ew/vorlesungen/ev/script_ev.pdf.

13 Vgl. „RIA Novosti“, 1.6.2007, sowie „Die Presse“, 20.3.2007.

14 Jörg Schindler und Werner Zittel, Fossile Energiereserven (nur Erdöl und Erdgas) und mögliche Versorgungsengpässe aus Europäischer Perspektive. Studie im Auftrag des Deutschen Bundestages, vorgelegt vom Büro für Technikfolgenabschätzung, Endbericht vom 22.7.2000.

15 Werner Zittel und Jörg Schindler, Energieversorgung, a.a.O., S. 92-112; Exxon, Öldorado 2006, www. exxonmobil.de.

16 Richard Heinberg, The Party’s over. Das Ende der Ölvorräte und die Zukunft der industrialisierten Welt, München 2004, S. 275-336.

17 Dick Cheney, Where the prize ultimately lies, in: „Studien von Zeitfragen“, Internet-Ausgabe, 2007, www.studien-von-zeitfragen.de/Zeitfragen/Cheney_on_Oil/cheney_on_oil.html.

18 Vgl. Michael T. Klare, Resource Wars: The new landscape of global conflict, New York 2001.

19 Vgl. William R. Clark, Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, Gabriola 2005; William Engdahl, Mit der Ölwaffe zur Weltmacht, Rottenburg a. N. 2006.

20 Robert Hirsch, Peaking of world oil production: impacts, mitigation, risk management, US-Energieministerium 2005; www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf.

21 Vgl. Colin J. Campbell, Frauke Liesenborghs und Jörg Schindler‚ Ölwechsel! Das Ende des Erdölzeitalters und die Weichenstellung für die Zukunft, München 2007.

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