Last week the Senate Committee on Energy and Natural Resources held a hearing on the geopolitics of oil.
The consensus conclusion of the witnesses: the United States is in deep, deep trouble, facing the emergence of an "axis of oil" that threatens to recreate the bi-polar world of the Cold War, complete with Russia as a principal actor.
Just as horrifying as the reality of dwindling oil reserves is the apparent shock felt by the committee senators, some of whom evidently have been living in fantasy land when it comes to the geopolitics of oil:
One Senator described the testimony as "frightening." And the outgoing Republican chair, Senator Domenici (R-NM), said that "what you told us today is absolutely startling with reference to the future." There appeared to be a genuine sense that some members really were surprised at how bad things look for the U.S. The shock was so great that after declaring himself a "free-market conservative," Republican Jeff Sessions (R-AL) concluded the session by admitting that if you looked at energy as a national security issue rather than as a market commodity, Congress might be justified in spending more money on energy R&D and tax credits.
Where have these people been the last few years? (In the pocket of Big Oil, perhaps?)
And all this talk about energy independence? Well, guess what:
Linda Stuntz, who participated in a Council of Foreign Relations report last fall on "National Security Consequences of U.S. Oil Dependency," stunned the Senators when she said that there was consensus among the report's authors that talking about "energy independence" for the United States was chasing an impossible dream. Stuntz said that it was not clear whether the U.S. could achieve energy independence even with the most "draconian" government interventions. Dr. Flynt Leverett from the New America Foundation echoed Stuntz's analysis:
"There is no economically plausible scenario for a strategically meaningful reduction in the dependence of the United States and its allies on imported hydrocarbons during the next quarter century."
The world's oil reserves are shrinking, which means competition and the potential for conflict over oil will be ratcheted up. How much are they shrinking? James Howard Kunstler has the numbers:
As a baseline, it helps to understand that the four largest super-giant oil fields of the world are now in decline. They have been responsible for producing 14 percent of the world's oil supply. They are now old and tired (thirty years is old in the oil world) and they are in depletion. These are The Cantarell field of Mexico, the Burgan field of Kuwait, the Daqing field of China, and the granddaddy of them all, the Ghawar field of Saudi Arabia.
The Cantarell field is a horror story. Pemex, the Mexican national oil company, tried to conceal the dire developments, because Cantarell alone is practically the whole Mexican oil industry. But it is now self-evident that Cantarell is crashing, with a 40 percent annual decline rate projected ahead, meaning a couple of years and it's out.
Mexico is America's second largest source of oil imports (after No. 1 Canada and before No. 3 Saudi Arabia). When Cantarell crashes, the Mexican oil industry will crash and the US will be out a major source of imported oil. The US will also be out of imports that were so conveniently close they could be shipped by pipeline rather than tanker ships.
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Burgan is is in decline. The Kuwaitis announced it themselves last year. Daqing has been the major source of China's domestic oil, which is otherwise paltry, meaning Daqing's decline will only make China more desperate for imports. Ghawar remains shrouded in mystery, since Saudi Aramco does not welcome outside audits. But at 50 years old it is well past the mean age of peak production for oil fields and that alone probably tells the story. Beyond that, we know that Ghawar is producing with a (best case) 35 percent "water cut" (and perhaps much higher).
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Elsewhere, Iran is not only past peak, but its domestic demand is so high that it cannot maintain its export levels. The North Sea, which saved the West's ass through the 1990s, is now crapping out at a steep decline rate. Iraq is on track to Palookaville, despite substantial reserves, and even if, by some miracle, its tired old oil infrastructure survives the war, the US may lose access to future production for geopolitical reasons that should be obvious.
Venezuela is past peak for conventional liquid crude and hurting badly for technical expertise to work its oil fields since Hugo Chavez purged the state oil company's management. Last year, Venezuela had to import Russian oil to avoid defaulting on contracts. Whatever the true condition of Venezuela's industry, Chavez is not disposed favorably toward the US -- he hosted Iran's president Ahmadinejad last week to signal that both of them were on the same page where the US was concerned.
The situation in US production is grim. We peaked in 1970. East Texas is near total depletion, with a 99 percent water cut (it produces "oil-stained water). Prudhoe Bay in Alaska now has a 75 percent water cut. We're on track to produce under 5 million barrels a day in 2007 (down from a 1970 high of about 10 million), and heading relentlessly further down year-on-year. We burn through more than 20 million barrels a day. Do the math and see above (re: potential imports) for our prospects.
Understand that the chief increase in demand for oil comes from the transportation sector. Yet in the United States there's hardly anything but happy talk about hybrid cars, as if we can go on as we are now, with no attention to mass transit or upgrading our railroad networks to move commodities that now travel by truck.
The geopolitical consequences of this diminishing of oil supply are already being seen. It was Flynt Leverett of the New American Foundation who warned the Senate Committee about an emerging "axis of oil," with Russia and China cooperating to the extent that US influence in Asia has already weakened. Kunstler noted that Iran and Venezuela share a common antipathy toward the US. And so it goes.
Bell, in his overview of the Committee hearings, points out that
State-owned oil companies now control 75% of the world's oil reserves. Exxon, the largest commercial oil company, is 14th on the list of reserve owners. Senator Domenici (R-NM) suggested that this chart should put an end to all the attacks on U.S. "big oil" companies, and any efforts to tax them further.
But the chart also illustrated another trend that is running strongly against the United States. The percentage of oil reserves in the hands of state-owned companies will only get larger in the future. More and more control will fall into the hands of fewer and fewer producers, increasing the volatility of the entire international oil market.
Oh, by all means, let us pity Big Oil with its record profits and not even think of ending their free ride.
Editorializing aside, the point is that we are going to see increasing volatility in the oil markets. And that means less energy security.
Given this broad picture, the last Congress's move to increase the weeks of Daylight Savings Time as just about the only energy-conservation measure they could come up with is nothing but absurd.
We had better get serious about cutting our demand for oil and developing alternative energy sources.