Whatever happens, an enduring U.S. naval fleet: Evidence is mounting that the U.S. will maintain its global naval footprint regardless of any shift in energy or geopolitics: Despite the shrinkage or disappearance of primary raisons d'etre, the Navy obtains other rationales for its current size. Here at FP, Robert Farley suggests that the Obama Administration regards the Navy as an organic tool for sustaining long-term geostrategic balance with China (pictured above, the nuclear-powered aircraft carrier USS Carl Vinson, docked in Hong Kong.). That explains the administration's shift of U.S. naval attention to Asia.
But what about the Carter Doctrine, under which the U.S. treats the Persian Gulf as covetously as if it were located off U.S. shores. Given the fresh belief that the U.S. is on the verge of virtual oil-independence, isn't this the moment that some folks have long awaited -- when the U.S. no longer must protect Saudi Arabia, and can save trillions of dollars in protective military spending underlying oil prices? The answer is no, says retired Gen. Chuck Wald, former deputy commander of the U.S. European Command. "If it had not been for oil and our dependence on oil, which started with Churchill, we would still feel a need to have a presence in the Middle East -- because of Israel," Wald told me. He said:
It is not an ‘either-or' situation, the way that some people say, that if it were not for oil we wouldn't have to worry about defending the sea lanes and all that. If you really look at one of the most interesting threats to sea lanes, it is the pirates off the coast of east Africa, and it has nothing to do with oil. ... [Whatever happens with oil] we are still going to have a growing interdependency based on commerce. As I used to say when I taught at the National War College, when the world has a problem with things globally, they like to call 1-800-USNavy.
I spoke with Wald by phone prior to his appearance at a Deloitte-sponsored event in Washington titled, "The Realities of Energy Security through Supply Independence." He feels strongly that the U.S. needs to build up energy self-sufficiency in order to have a more independent foreign policy. But he simply doesn't think that, while becoming more independent, the U.S. role abroad will lessen. Iran, Wald said, "is playing us like a drum right now from the standpoint of foreign policy based on the pressure they can put on us on the concern about [oil supply] disruption -- this is a bad situation we put ourselves in." Wald:
We are in a situation that doesn't get any better, even though we are [headed toward] an interestingly bright future energy-wise because of fracking and potential imports from Canada and potential technology breakthroughs in the Gulf of Mexico.
Go to the Jump for more of the Wrap.
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What do you do if you have the natural gas equivalent of 6 billion barrels of oil, and no way to get it to a market? And what if you are uncertain that there will ever be a profitable market for this stranded treasure, at least in the coming couple of decades?
If you are Alaska and the Big Oil companies drilling there, you check the numbers, and check them again, but know that ultimately you will be gambling based on the following calculus: In the glutted U.S., natural gas prices are at their lowest in a decade, under $2 per 1,000 cubic feet; in Asia, the same volume of gas is selling for up to ten times that sum, or $20.
So it is that BP, ConocoPhillips and ExxonMobil are contemplating spending $40 billion for a liquefied natural gas system to emancipate their natural gas riches on Alaska's North Slope, and shipping it on to Asia, as I have written at EnergyWire.
If they proceed, which seems likely, they will be locked in battle with far-flung gas sellers -- Qatar, Russia, Australia and Mozambique among them -- who are already piling in to take advantage of Asia's high prices and voracious appetite. In particular, they are piling in to China.
Call China the Hub of Hope, the 800-pound gorilla in the whole of the big energy shakeup we are witnessing around the world. Oil demand is contracting in the U.S. and Europe, but it is soaring in China. Natural gas demand is ticking up gradually in these same developed markets, but China's is going up at double-digit annual rates.
It is this Chinese demand -- and not just political risk associated with Iran -- that is propping up oil prices at over $100 a barrel, as well as Asian gas prices. As long as these conditions keep oil at approximately such levels, you will continue to see a boom in the production of U.S. oil shale and Canadian oil sands, in addition to the excitement in ultra-deep water around the world. Lower those prices substantially, and at least some of the eagerness will go too.
If China can detain the wife of a top politician on suspicion of murdering a British businessman, can there be hope that Russia will adjudicate the jailhouse death of Sergei Magnitsky? What about the elevator execution of journalist Anna Politkovskaya? Or the nuclear-isotope poisoning of former KGB officer Alexander Litvinenko?
Beijing has detained Gu Kailai, the wife of now-disgraced Communist Party official Bo Xilai, on suspicion of murdering Neil Heywood, a long-time British business associate whose body was found in a Chongqing hotel Nov. 15. At first, Chinese authorities blamed alcohol poisoning, but yesterday they said he was murdered.
The hard facts are clear, most experts agree -- this is a real murder, and authorities suspect that Gu and a servant played a role in it. But the rest is politics, said Chris Johnson, a former senior analyst on China for the CIA, and now a fellow at the Center for Strategic and International Studies. Johnson told me that Bo crossed an invisible line: He had seemed destined to be elevated to the all-powerful standing committee of the Communist Party Politburo. But he had created powerful enemies along the way, and ultimately self-destructed when a senior aide fled into a U.S. Consulate on Feb. 6, and divulged details of Bo's corrupt dealings, and the Heywood murder. Breaking the law and common decency are one thing when you are a senior Chinese official, but it appears that having it aired very publicly is quite another.
Yet even by those standards Russia falls short: Judging by the history of the last five or six years, if you commit a high-profile murder in Russia, you can be fairly assured of going on with your daily life unmolested.
There is no indication of a Bo copycat in Russia. Why? Newsweek's Owen Matthews puts it this way: Russia is one of the few countries where it's cool to be an outlaw.
In our now half-decade-old era of regularized black swans, a few energy thinkers are cautioning against a bubble of wishful enthusiasm with regard to U.S. oil -- a widely embraced paradigm shift that, if true, would disrupt geopolitics from here to the Middle East and beyond. A shift is afoot, but not a new world, says Dan Pickering, co-president of Tudor, Pickering, Holt, a Houston-based energy investment firm.
The new abundance model goes like this: Americans currently consume about 18.5 million barrels of oil a day, of which about 8.5 million barrels are imported. But in coming years, the U.S. will have access to another 10 million to 12 million barrels a day of supply collectively from U.S. shale oil, Canadian oil sands, deepwater Gulf of Mexico, and offshore Brazil. Add all that up, and account for dropping U.S. consumption, and not only do you get hemispheric self-sufficiency, but the U.S. overtaking Saudi Arabia and Russia as the biggest oil producer on the planet.
Pickering calls this calculus "a pipedream" founded on the extrapolation of data. Excluding Brazil, whose numbers he finds difficult to nail down, he is forecasting a lift in North American production of around 2.5 million barrels a day -- up to 1.5 million barrels a day from shale oil, and another 1 million barrels a day from Canada. In 2020 and beyond, he says, the U.S. will still be importing some 6 million barrels a day from outside North America.
Technically, that does not make Pickering an outlier: The official U.S. Energy Information Administration also says the U.S. will remain a big importer into the next decade; the EIA import number overshadows Pickering's -- 7.5 million barrels of oil a day in 2020, or 40 percent of U.S. supply (see here, page 11).
Yet in practice Pickering morphs into a contrarian because, according to cacophonous oil CEOs and industry analysts, the trouble with the EIA is that it is sluggish: The EIA shale oil numbers are far too conservative, assert these folks, just as the agency -- like many others -- underestimated the U.S. shale gas boom that has glutted the market and changed part of the global energy calculus.
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In a profession that prizes the illusion of reality, Hugo Chavez is one of politics' best -- a consummate actor whose connection with the Venezuelan masses has kept opponents off balance for 13 years. We never know if the Venezuelan president is putting us on.
So is he now?
For the last several months, Venezuelans have witnessed the drama of a cancer-stricken Chavez shuttling back and forth to Cuba for treatment, all the while taunting opponents seeking his ouster in October presidential elections. Last week, they were treated to scenes of the usually feisty Chavez in church, tears rolling down his cheeks, hands clasped in his parents', and beseeching Christ, "Don't take me yet." Meanwhile, a rumor went around that he was giving up on Cuba, and heading imminently for superior treatment in Brazil. Only to turn up yesterday in Havana, where he was met by Raul Castro.
"He is pulling all the stops for sympathy and will likely get it from his support base," a skeptical Stephen Johnson, director of the Latin America program at the Center for Strategic and International Studies in Washington, told me in an email exchange. He said:
Yet what all this theater means is very hard to determine, since few verifiable facts are available on what may be wrong with him. Offers of treatment in Brazil have been spurned before, either because he is not really ill, or because he really believes the best medicine is in Cuba.
We are watching the flow of events in Venezuela in large part because of the potential impact in the greater region, given Chavez's penchant for projecting influence through the use of the country's oil proceeds.
Leo Ramirez AFP/Getty Images
The mysterious psychology of price: The well-established wisdom is that consumers respond to psychological price points -- offer your product at $9.99, and shoppers are far more likely to buy it than at just a penny more, or $10. So it has been with gasoline: In 2008, American car-buyers fled gas-guzzling vehicles when fuel crossed the $4-a-gallon price point, bought more fuel-efficient models, and generally drove much less. This year, the same seems to have occurred, as I wrote -- with gasoline again approaching an average of $4 a gallon, we see far greater sales of fuel-efficient vehicles. Yet is it so simple? Perhaps not, says Paul Hunt, president of Pricing Solutions, a Toronto-based firm that advises companies on how to price their products. Hunt told me that consumers may only seem to be responding more negatively to $4 than to $3.99 a gallon, but that something else may actually be going on in their collective heads. It is not the per-gallon rate that sets a motorist's hair on fire, Hunt said. It is the $66.81 total price of filling up.
But when it comes to buying, are gasoline and shoes truly such different creatures? Surely, I asked Hunt, the sight of $4 on the gasoline station signboard is enough to drive off immediately to the Kia showroom. Only in the big picture, he replied. "People really look at the total fuel bill and make sure they can go to a restaurant once a week rather than pay for fuel," he said.
Maybe in 2008 it looked like people were making a decision because of $4 gas, but actually it was the total price that influenced them. [They are thinking], ‘It cost me $85 to fill up, and I want to save $10 a week.' They do the math.
Furthermore, the price has to stick. Even that $85 gas bill won't have a lasting impact unless a driver thinks that will be the price for a long time to come.
In a curious footnote, Hunt said that although price-per-gallon is not the pivotal fact on the way up, it can be on the way down. Motorists watch the signboard for a price that to them signifies "cheap." Then "they go hit the pumps," Hunt told me. "When prices are moving down, people have something that attracts them."
Go to the Jump for more of the Wrap.
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A long-awaited threshold appears to have finally been reached in U.S. gasoline prices -- the point at which Americans say "enough." And it is strikingly similar to the last time they did so. With average gasoline prices at just under $4 a gallon, American car-buyers -- just as they did in 2008 -- have begun to veer away from gas-guzzling SUVs, and sharply toward efficient vehicles, including much-derided electrified cars.
This inflection point diverges from the conventional wisdom, which is that, four years after enduring $4 gasoline for the first time, Americans are inured to this striking point. Which price would turn their heads -- $5 a gallon? $6? -- was anyone's guess.
Instead, there still appears to be something important about the number 4, according to vehicle sales reported this week. What does it mean? To the degree that prices stay there, overall U.S. gasoline demand will continue to drop, and the country's economics improve. Will we see the emergence of heretofore unseen American tastes, such as a sudden embrace of motor scooters -- in England, motor scooter sales are surging with gasoline prices verging on *gasp* $9.50 a gallon (pictured above, city transport in Ho Chi Minh City).
For now, it is simply more fuel-efficient four-wheeled vehicles. Consider: Last month, cars achieving 30 miles or more a gallon comprised about 44 percent of GM's sales of 231,00 vehicles, which was a record number for the company, reports the Wall Street Journal. Sales of Toyota's hybrid Prius leapt by 54 percent compared with March last year, to a record 28,711 vehicles. Sales of the GM Volt, the punching bag of the Republican Party, soared to a record 2,289, about 50 percent higher than December, the previous high-sales month. All in all, electrified vehicles were the leading growth sector of U.S. car sales in the first quarter of the year, according to Bloomberg, jumping by 49 percent to 117,182 vehicles.
As a result, GM -- which had halted production of the Volt for five weeks because of poor sales -- is lifting the stoppage a week early, and will resume making the car April 16.
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To understand why companies wish to drill off the U.S. eastern seaboard, you need only make a beeline 5,000 miles southeast -- straight to Jubilee, an oilfield off the shore of the west African nation of Ghana. Because there are an estimated 1.5 billion barrels of oil in Jubilee, the reckoning goes, there just might be oil off the coast of Virginia. The reason is ancient geology -- Africa and the Americas were once one gigantic continent, and geologists have already found analogues to Jubilee across the Atlantic in French Guinea, as I write on EnergyWire.
These similarities are interesting not just for their curiosity value, but because they are part of a stark transformation in how experts perceive global energy, and trends in geopolitical power: Less than a year ago, the conventional narrative was scarcity -- Big Oil simply could not find any more super-giant oilfields, and were left trifling with comparative puddles. Hence, the world needed to develop alternative energy, and fast. Now, barely a week goes by without a fresh discovery in Africa, and a new expert report on the new U.S. oil bonanza; we are told we have oil and gas as far as the eye can see, limited only by the skilled labor, pricing points and equipment to produce it (pictured above, pipeline awaiting installation in Cushing, Oklahoma.).
In a significant way, that is good news -- to the degree it is accurate, we are not imminently returning to the Stone Age, as a new-age movement known as the Doomers have forecast.
But it is a highly challenging development for those concerned about the Earth's warming trend: They are stripped of one of the primary underpinnings of their argument for rapid development of solar, wind and electric cars -- that oil is running out, and that the West is too reliant on supplies from nefarious nations. As it appears, much of the new oil will be produced by quite normal nations, such as Canada and the United States.
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.