[Trusties] Peak Oil- are we teetering on the brink?

Fri Aug 1 07:35:08 EST 2008

From: New Scientist (pg. 32), Jun. 25, 2008
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<http://www.precaution.org/lib/08/prn_final_warning.080628.htm> 

OIL: THE FINAL WARNING

By Ian Sample

Howls of protest have been echoing round the globe as the price of oil
punches through record highs with every passing week. In the UK, last
month, hundreds of truckers descended on London to demand that planned
fuel tax rises be scrapped. In continental Europe, where police
clashed violently with truckers, two people died during the protests.
Fishermen and farmers blockaded ports and depots in protest against
the rocketing cost of diesel. Similar scenes played out across South
America and Asia.

In the US, the world's thirstiest oil consumer, gasoline reached an
all-time high of $4 per gallon, forcing the administration to lean on
domestic producers and consider suing foreign oil exporters for
allegedly rigging the market. When President Bush implored Saudi
Arabia, which controls the lion's share of the world's proven
reserves, to pump more from its wells, the Saudis came up with only a
token increase.

The situation is not about to improve. Bankers Goldman Sachs and
Morgan Stanley have both suggested that the crude oil price could rise
from the high of $139 a barrel (as New Scientist went to press) to
$200 or more, while the financial speculator George Soros predicts
that rising oil prices could send the US economy into recession.

Expensive fuel at the pumps is just the start. These battles over the
price of oil could be the harbinger of something even scarier. There
is a growing realisation that we are teetering on the edge of an
economic catastrophe which could be triggered next time there is a
glitch in the world's oil supply.

A number of converging forces are making such an event more likely
than ever before. First, there is the spectacular rise in global oil
consumption, which, according to the International Energy Agency (IEA)
now stands at 87 million barrels of crude (about 10 billion litres) a
day. Most geologists now accept we have reached, or will imminently
reach, peak oil. Some fields in the US and the North Sea have been
pumped dry and production is becoming increasingly concentrated within
fewer countries. Add a boost from speculators betting that things will
get even worse, chicanery by the Organisation of Petroleum Exporting
Countries (OPEC) cartel which over the past two years has added Angola
and Ecuador to its ranks to mask the decline in production of its
existing members, and it's not hard to see why prices have been forced
ever upwards. But price conceals the much more complex mess we're in.

In the past, it has usually been possible to ride out any disruption
to world oil flows -- whether from accidents or hostile acts -- by
pumping more oil from the ground. That spare capacity has now all but
vanished, as oil producers cash in on soaring prices by extracting as
much of the stuff as they can. "There is absolutely no slack in the
system any more," says Gal Luft, executive director of the Institute
for the Analysis of Global Security, a Washington DC-based think tank
specialising in energy security. It is this lack of wriggle-room that
has brought us to the brink.

In the days when oil producers had more leeway, they could make up for
a disruption somewhere in the system by quickly raising production by
around 3 million barrels a day, says Nick Butler, head of the
Cambridge Centre for Energy Studies, part of the University of
Cambridge's Judge Business School. That crucial reserve capacity has
now fallen below the daily output of some producers -- meaning that if
the taps were turned off in any one of a number of unstable oil-
supplying nations, such as Nigeria, Iraq, Iran or Angola, the impact
would be felt almost immediately.

This has left the oil market so fragile that a few well-placed
explosives, an energy-sapping cold winter or an unusually intense
hurricane season could send shock waves across the globe. The
potential consequences are so serious that governments are drawing up
emergency plans to cope should the worst happen. According to one
analyst who took part in a simulation of just such a crisis, the
situation most experts fear is what they call a "psychological
avalanche".

Here's what happens. A small, distant country one day finds it can no
longer import enough oil because of a spike in prices or problems with
local supply. The news media whip this up into a story suggesting an
oil shock is on the way, and the resulting panic buying by the public
degenerates into a global grab for oil.

Most industrialised countries keep an emergency reserve as a first
line of defence, but in the face of worldwide panic buying this may
not be enough. Countries in which the oil runs out face transport
meltdown, wreaking havoc with international trade and domestic
necessities such as food distribution, emergency services and daily
commerce. Without oil everything stops.

The roots of our oil addiction can be traced back to the end of the
19th century, when petroleum began to be pumped from wells across
America. It wasn't long before it become obvious what a great
transport fuel it could provide. Oil-based fuels paved the way for
intensive farming and extensive road networks; they drove the influx
of populations into cities, drove growth in shipping and eventually
made mass air travel possible. "Oil has shaped our civilisation.
Without crude oil you'd have no cars, no shipping, no planes," says
Gideon Samid, head of the Innovation Appraisal Group (IAG) at Case
Western Reserve University in Ohio.

And it's not just about fuels. A giant chemical industry relies on oil
as its feedstock, and without it many of the products we now take for
granted would vanish. "You'd see no plastics, no bags, no toys, no
cases on TVs, computers or radios. It's absolutely everywhere," says
Samid.

"Much of the economic expansion and growth of the human population in
the 20th century is directly tied to the availability of large amounts
of cheap oil," says Cutler Cleveland, director of the Center for
Energy and Environmental Studies at Boston University. "There isn't a
single good or service consumed on the planet, except in rural
economies, that doesn't have oil embedded in it. Oil is the lifeblood
of the global economy."

The secret of oil's success is its portability and extraordinarily
high energy density. One barrel of oil contains the energy equivalent
of 46 US gallons of gasoline; burn it and it will release more than 6
billion joules of heat energy, equivalent to the amount of energy
expended by five agricultural labourers working 12-hour days non-stop
for a year.

The vast majority of oil is consumed by transport. In the US, that
sector accounts for nearly 70 per cent of the 20.7 million barrels the
country gets through each day. The chemical industry turns half of the
rest into plastics, solvents and pharmaceuticals.

More than half of the world's oil comes from seven countries, the
leading supplier being Saudi Arabia, which produces more than 10
million barrels a day. Then come Russia, the US, Iran, China, Mexico
and Canada. Twenty years ago, there were 15 oilfields able to supply 1
million barrels a day. Now, there are only four. The largest is the
Ghawar field in Saudi Arabia.

The IEA, which advises 27 countries on oil emergencies, requires its
members to hold at least 90 days' worth of fuel, which can be pooled
and released onto the market if a crisis looms. The system last swung
into action in 2005 when hurricane Katrina caused the shutdown of more
than 23 per cent of the US's oil production capacity. A few days after
Katrina struck, the IEA ordered the release of 2 million barrels a day
from reserve stocks for a month, the first time reserves had been
released since the Gulf war in 1991.

About half the world's oil is distributed by tankers mainly plying a
handful of key routes across the oceans. The rest goes through an
extensive network of pipelines that can carry different grades of
crude and synthetic compounds, such as lubricants. The bewildering
complex of pipelines -- extending 90,000 kilometres in the US alone -
crosses continents and dips under oceans.

The pipelines are often above ground and vulnerable to accidental
damage or attacks by saboteurs. When working, however, they provide an
extremely efficient way of transporting oil. A pipeline that pumps a
relatively modest 150,000 barrels per day delivers the equivalent of
750 oil tanker truck loads or one delivery every 2 minutes, day and
night. Even if a pipeline is damaged, it can usually be quickly
repaired. Valves at intervals along the pipe can isolate the leak
while the damaged section is replaced.

Disruption can still be costly. A report in 2005 by a US House of
Representatives subcommittee on terrorism reported that sabotage to
oil pipelines in Iraq had cost the country more than $10 billion in
lost revenues, even though protection had been a high priority for the
coalition troops since they invaded two years before. The report
suggested that groups hostile to the US and its allies were becoming
increasingly expert at mounting these attacks.

Choke points

Even outside a conflict zone, accidents can cause serious disruption.
Last year, the IEA was on standby to release reserves after an
explosion in Minnesota shut down part of the 5000-kilometre Enbridge
pipeline, which pumps 1.9 million barrels of crude a day from Canada
to the US Midwest. This single incident halted one-fifth of US oil
imports for days.

Oil deliveries by sea are vulnerable too. A fleet of 4000 tankers
plying six main routes delivers more than 43 million barrels of oil
every day. Many of these routes pass through narrow "choke points",
and if any of these were to become impassable, even temporarily, the
effect on oil supplies could be dramatic.

For instance, more than 16 million barrels of oil a day are shipped
through the Strait of Hormuz, at the mouth of the Persian Gulf, taking
oil from Saudi Arabia, Iran, Iraq, Kuwait, Qatar and the United Arab
Emirates to the US, western Europe and Asia. At its narrowest point,
the strait is only 33 kilometres wide. If necessary, some of Saudi
Arabia's exports could be diverted through the 1200-kilometre East-
West pipeline to the Red Sea, but its maximum capacity is only 5
million barrels a day, half of which is already taken up.

Between 1984 and 1987, during the Iran-Iraq war, both countries
attacked tankers in the Strait of Hormuz, causing shipping to drop by
25 per cent. In 2003, the Bush administration claimed it had prevented
further attacks on shipping in the strait.

Another pinch point occurs in the Strait of Malacca, which narrows to
just 2.7 kilometres between Sumatra and Singapore. Tankers from the
Persian Gulf and west Africa transport some 15 million barrels a day
through the strait en route to Japan, China and other Pacific
destinations. A report by Luft claims that some tankers have been
hijacked here by would-be terrorists whose initial aim has been simply
to learn how to operate them. In 2003 a small chemical tanker called
Dewi Madrim was taken over by 10 armed men, who sailed it through the
strait before leaving with equipment and technical documents.

One scenario being suggested is that hijackers might commandeer a
liquid natural gas tanker plying one of these shipping routes, load it
with explosives and use it to ram an oil tanker. If this floating bomb
produced a burning oil slick, it could render the passage impassable
for months, tipping the global economy into crisis as alternative
routes would fail to make up the lost supplies.

Another key element in the global oil infrastructure is Abqaiq, an
enormous processing facility in Saudi Arabia, which removes sulphur
from two-thirds of the country's crude. The CIA estimates that seven
months after a large-scale attack, output would still be only 40 per
cent of its full capacity.

More than half the oil from Abqaiq is pumped to the largest offshore
oil terminal in the world, Ras Tanura on the Persian Gulf, which
handles one-tenth of the world's oil. This makes it a prime target for
attack, and the site is as heavily defended as a military base. "If
you have a facility like this and a plane crashed into it, or
terrorists get in and somehow succeed in blowing it up, then you have
a very, very significant disruption on your hands. That is what
analysts see as a doomsday scenario," Lufts says. Reuters reported
that one planned attack on the terminal was thwarted in 2006. Saudi
oil production is particularly vulnerable because it is concentrated
in a few massive production and distribution sites. "If one or two of
these facilities goes down, then the entire system goes down," says
Luft.

So what would the impact be if oil supplies choked? In 2005, a group
of current and former US government and national security officials
were asked to address this in a live role-play exercise. Playing the
part of the national security adviser was Robert Gates, who the
following year became Secretary of Defense. The scenarios that
unfolded were developed with officials from the Shell oil company in
the Netherlands, a former US presidential counter-terrorism adviser
and industry analysts.

The simulation kicked off with an upsurge of political violence in
Nigeria, the fifth-largest supplier of oil to the US. In the ensuing
turmoil 600,000 barrels of oil production a day were lost from the
Niger delta. The violence coincided with the start of a cold winter in
the northern hemisphere, which increased demand by 700,000 barrels a
day. Together, these events boosted the price of a barrel of oil from
$58 to $82; a proportional rise today would push the price beyond
$195.

Events began to gather pace when, a month later, the simulation threw
in an attack on the Haradh natural-gas processing plant in Saudi
Arabia, which forced the country to cut 250,000 barrels per day from
its exports -- equivalent to the oil consumed every day in Switzerland
- to meet domestic needs. Next, news arrived of an attempt to ram a
hijacked supertanker into another vessel moored at a jetty at Ras
Tanura. This was closely followed by a similar attack at the oil port
of Valdez in Alaska, as well as a ground attack which set fuel depots
alight. With the world oil shortfall now at 3.4 million barrels per
day, the price per barrel had shot up to $123. Against the recent peak
price of $139, that rise would take the cost per barrel to $295.

The turmoil leads to an aggressive crackdown on anti-western groups
and their sympathisers, which temporarily quells further attacks.
Then, six months into the simulation, a terrorist campaign is launched
against foreign workers in Saudi Arabia, killing 200 and wounding 250
within 48 hours. Evacuation of foreign workers follows.

Though oil production continues unchecked, this loss of expertise
leaves Saudi Arabia unable to meet future demand and with no spare
capacity. Fears that this could lead to shortages in the future bring
speculators into the market, and the price per barrel rises to $161.
At the end of the simulation, global production has fallen by 3.5
million barrels a day, or 4 per cent of world oil supplies. One of the
participants, Jim Woolsey, a former head of the CIA, described the
scenarios as "relatively mild compared to what is possible", yet this
proved enough to almost triple the price of a barrel of crude.

The key conclusion being drawn from this scenario is how reliant the
global oil market is on Saudi Arabia's ability to ramp up production
on demand. If this extra oil is not available, the price rockets.
Saudi Arabia's recent reluctance to increase production and the
ensuing price rises in today's real-life oil market amply bear out
this prediction.

So where does this leave us at a time when global oil production is
approaching the point when it stops growing and starts to decline?
Most industry experts, including geoscientists and economists, who
were polled by Samid in 2007 said that peak production will occur by
2010. This contrasted with a similar survey conducted two years
earlier, in which respondents were split, with many of the economists
opting for a later date. "Now, a real consensus is emerging," says
Samid.

This tells us that we will have to start making serious attempts to
wean ourselves off oil, and fast. It will be no easy task. "It's
hardly conceivable that the world could function without oil," says
Didier Houssin, director of oil markets and emergency preparedness at
the IEA.

"It is hardly conceivable that the world could function without
oil"Finding a replacement fuel for transport is the biggest challenge.
So far all the alternatives have hit the skids. For example, hydrogen,
which could potentially replace oil as a green fuel if made using
renewable sources of energy, has storage and distribution problems.
While biofuels, which could be an easier replacement for fossil fuels,
require feedstocks that compete with food crops for water and
agricultural land. "To get these alternatives close to what oil can
do, you have to invest a lot of money," says Cleveland, something most
governments and energy companies have done reluctantly, and at
pathetically low levels. "These aren't insurmountable problems, but
they suggest the transition has some formidable challenges," he adds.
One way or another oil will become more scarce, even more costly and
will always have the disadvantage of generating carbon dioxide when
it's burned. However hard it may be, the sooner we make the break, the
better.

Ian Sample is science correspondent for The Guardian newspaper in
London

Copyright Reed Business Information Ltd.

--

Tim Winton

Permaforest p/l

+61 0427 937 904

http://www.permaforest.com.au <http://www.permaforest.com.au/> 

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