When it comes to gasoline, are Americans transforming from the world's chief gluttons to models of moderation? According to Philip Verleger, the energy economist, that is more or less the country's direction, with surprising consequences.
Verleger spells out this scenario in a note to clients, his version of the narrative of coming fossil-fuel abundance that we have heard elsewhere. Verleger's 11-page note is as oil-bullish as his most enthusiastic colleagues, who as a group say the U.S. is on the cusp of near energy independence. The oil-abundance narrative is a global one, and asserts flatly that peak oil theory is wrong.
Where Verleger diverges is in ascribing most of the responsibility for this U.S. oil boom not to more prolific oilfields, but to consumer efficiency. "[Gasoline] use will drop significantly by 2020 thanks to conservation, natural gas substitution and the ethanol mandate," Verleger told me in an email.
By 2022, 36 billion gallons of renewable fuels must be blended into gasoline, in line with a George W. Bush-era law. On top of that, President Obama has raised the bar for vehicular fuel efficiency to 54 miles per gallon, up from the current 30 miles a gallon. Plus long-haul truckers are making a shift to natural gas fuel, Reuters reports.
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Florida's anti-Castro activists, along with both presidential candidates, can relax for the time being -- the latest attempt to strike oil in Cuba has failed. If Spain's Repsol had found what it expected underneath the Northbelt Thrust north of Havana, it could have seriously complicated politics in pivotal Florida, which decided the 2000 presidential race. Yet, Cuban oil politics may still be coming to Florida.
Few places in the U.S. are so tethered to the politics of another country as is Florida. Hundreds of thousands of Floridians -- Cuban-Americans -- continue to seethe at the Castro family's survival after a half-decade in power (waving above, President Raul Castro) and they expect their politicians to seethe with them. On the national scale, it is difficult to win Florida's 29 electoral votes if the Cuban-Americans are against you.
Hence the politics of Cuban oil. Estimates are that the Northbelt Thrust contains 6 billion barrels of oil. Repsol tried and failed to find commercial volumes in 2004, but was sure that the industry's vaunted new technology would succeed this second time. If its intuition was right, Repsol would have validated Cuba's aim of becoming the world's next petro-state. That oil would have buttressed the Castro edifice with a big new source of export dollars.
Because of U.S. sanctions, no U.S. technology was used in the drilling. Yet, some quarters predictably would have accused President Obama of allowing the hated Castros to get rich. Both he and presumptive GOP nominee Mitt Romney would have had to find a way to make the anti-Castro folks feel better. What neither would want to say is, "Get a life. It's called the free-enterprise system."
Because of this charged atmosphere, Repsol itself -- which has serious operations in the U.S. as well -- has been forced to lay extremely low, not talking at all publicly about its Cuban operations.
Alas, a few days ago, Repsol said the well was dry.
Yet no one can relax entirely - Malaysia's Petronas is in line to drill next in Cuba's waters, and the results seem likely well before November. Hence, Obama and Romney must keep watching Cuba.
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Last month, the Financial Times reported that Goldman Sachs-backed Cobalt International Energy had partnered up with a local Angolan company as it sought rights to drill a world-class offshore oilfield. The company to which Cobalt offered the equity stake was partly owned by three senior Angolan officials, the FT wrote. Three months ago, Houston-based Cobalt went on to declare a discovery in a well called Cameia-1. Now, U.S. authorities are investigating Cobalt. [Update: Cobalt responds below.]
Angola has received much attention on the issue of payoffs in recent months. Global Witness, the U.K.-based investigative firm, has issued a report about $550 million in "social payments" provided to the state-owned oil company Sonangal by Cobalt, BP and a private Angolan-Hong Kong joint venture.
But this is just the way the oil business works on the frontier, as I write today at The New Republic. In December 2010, for example, Halliburton paid $35 million to Nigeria to settle a bribery case involving a big liquefied natural gas project that had drawn in former Vice President Dick Cheney. And not just the oil business - what makes the subject topical right now is a New York Times allegation of extensive bribery by Wal-Mart in Mexico.
I started looking at the phenomenon while based on the Caspian Sea in the 1990s. At the time, oil executives' faces would go uncomfortably pale when you mentioned a certain known go-between for bribes to senior Azerbaijan officials. In Kazakhstan, feet would shuffle and voices get rattled at the mention of James Giffen, the New York lawyer who later was charged with serving as a conduit of foreign oil payoffs to President Nursultan Nazarbayev. Two years ago, Giffen was acquitted in federal court in New York -- he did not contest the facts of the bribery accusations, but said he was innocent because the whole time he was serving his homeland, slipping inside dope to American intelligence agencies.
Things have changed. I talked to Joseph Covington, a Washington lawyer who in the 1980s headed the foreign bribery section at the U.S. Justice Department. He suggested that, unlike just a few years ago, American businessmen are no longer terrified of the Foreign Corrupt Practices Act, which outlaws bribery of foreign officials to obtain business. In the Caspian days, businessmen would fess up to bribery and pay for an extensive internal clean-up to avoid prosecution. That still is usually the case, but after Giffen showed that with the money and the gumption one can beat the FCPA, we are seeing more cases of executives electing to fight.
In New Paltz, N.Y., 80 miles north of Manhattan, Richard Parisio laments the disturbance of the "sweet pure song of the white-throated sparrow." The culprit? Hydraulic fracturing, Parisio writes in the New Paltz Times -- "noise, night and day, from droning compressors, clanging drilling rigs, roaring gas flares."
Parisio worries that not just sparrows, nor their human appreciators, will be left the lesser for this state of affairs. There are the hermit and wood thrush, who could be "driven from their breeding grounds, unable to hear each other's songs, so crucial to courtship and the establishment of territory." And what about the bats? Will they manage to "find their food by echolocation amid all the background noise"? Parisio fears the answer may be no, which could trigger unknowable consequences such as a rise in the population of mosquitoes when their bat predators are fewer.
The new age of energy is making our lives less tranquil. Writer Robert Bryce has discussed the whoop-whooping of wind turbines, the "headaches, ear pain, nausea, blurred vision, anxiety, memory loss, and an overall unsettledness" suffered by those who live near them, not to mention the "fatigue, apathy, and depression, pressure in the ears, loss of concentration [and] drowsiness." This is a global phenomenon, says Bryce over at the National Review, a malady in "Missouri, Oregon, New York, Minnesota, Wisconsin, Britain, Australia, Canada, Taiwan, and New Zealand."
One can shake one's fist at windmills (pictured above, Copenhagen), but business is generally a cacophonous thing. Going back as far as one would like, merchants have probably always barked out the virtues of their wares, and some economic activities have been noisier than others. As we know, for instance, the racket of horse-drawn wagons in 18th and 19th century London was so ear-splitting that one simply could not speak audibly on the street.
Alas, the horses are gone, but the din remains. Across the globe, we are subject to disrespect of tender ears. At the Economist, there is gnashing over the defiant rustling of papers and cell-calling in the quiet cars of commuter trains across the Commonwealth, from Great Britain to Australia. Even in the joyfully raucous bazaars of Istanbul, there is a feeling that the shouting of merchants may have gone too far, reports the Wall Street Journal.
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By the end of the decade, Israel will probably satisfy all its own natural gas requirements, and become a serious exporter of liquefied natural gas. Argentina might produce the world's third-largest volume of shale oil. Mozambique seems likely to become one of the largest LNG exporters in the world. And the United States may meet most of its own liquid-fuel needs.
Which is to say that the geopolitical fabric with which we have grown up seems to be unraveling in spots, and a new patchwork taking its place in Africa, the Middle East, North and South America, and beyond. Settled power and influence are giving way to a maelstrom of moving parts.
The backdrop is a global revival in the oil and gas business, ignited by energy companies that, after two decades of largely standing still, are finally drilling with purpose. These companies could yet self-destruct if they are not environmentally watchful. Clean-tech could achieve massive advances and economies of scale. But as of now, the colossal hydrocarbons industry -- long the tipping point, and at times the singular force, behind countries becoming rich, or falling behind -- is serving as the weaver of the new geopolitical fabric.
What could geopolitics look like? It is premature to detect concrete shapes, as Citigroup's Ed Morse wrote in a much-read recent note to clients. Yet we can discern outlines of the potential appearance of the new world.
We already know, for example, that the heft of the U.S. shale gas boom has challenged Russia's natural gas grip on Europe. Saudi Arabia also fears shale gas, whose abundance could ultimately contribute to the erosion of U.S. oil demand, as Chris Weafer said last week on this blog (also see remarks below by oil scholar Philip Verleger.).
Saudi has valid reasons to worry, as it seems almost-certain that the fresh big oil finds on other continents will whittle away at the centrality of the mighty nations of OPEC, the bain of Western economies for 35 years. OPEC seems far less likely to call the shots in global oil and, according to Citigroup and other analysts, the per-barrel price its members earn could be much-reduced. The wild card will be demand, meaning China's future oil appetite, and the continued progress of energy efficiency.
Similarly, Russia, the world's other current major oil-exporter, will probably be forced into serious political and economic reforms or face decline. Its government spending is too high, its non-hydrocarbon economy too anemic, and now its oil and gas sectors under challenge.
On the other side of the ledger, numerous heretofore basket-case nations up and down Africa's coasts will have to decide whether to squander their unexpected new petro-fortunes, or build middle classes and stable societies. In addition to Mozambique, that includes Tanzania, Kenya, Cameroon, Cote d'Ivorie, and more. Similar prosperity would be in the line of sight of numerous South American nations.
As for the United States (pictured above, drilling in Pennsylvania), a small but growing number of economists see the potential for a resurgent economy, built on the back of cheap natural gas. Leading the pack is Citigroup's Morse, who in the report cited above says the U.S. may more than halve its budget deficit by 2020, and experience a radical economic "revitalization and reindustrialization."
Likewise, we have a dissection of a coming U.S. boom in the Financial Times from Philip Verleger, who ran the Office of Energy Policy in the Treasury Department during the Carter Administration, and is a fellow at the Peterson Institute for International Economics.
With all of this turbulence, is it an article of faith that China will rule the world in the second half of the century, as many presume? China still looks on track to have the largest economy, but the many moving parts -- including its challenging demography, as the Economist reports -- make its trajectory seem less certain.
I separately emailed Verleger asking his opinion of the bullish forecasts of shale oil that we are seeing from Morse and others -- what is the data backing up these predictions? Verleger had an answer, but was mostly interested in laying out a case for what he calls a "Kodak Moment" of marginalization for the U.S. oil industry. The email is provocative, and I reprint in full after the Jump.
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Sudan has declared war on South Sudan, India has fired a long-range missile, yet oil and gasoline prices are down.What is going on?
Common sense has come over our much-scorned oil trader friends in New York and London.
For months, there has been a global surplus in oil and gasoline, which should mean lower prices than we have seen. Yet, because of geopolitical tension such as the trouble between Iran and the rest of the world, prices have not dropped -- until now.
Oil prices are down again today, a declining trend that seems genuine when you get no bump-up despite official war between two modest oil-producers, and a missile test by a nuclear power with menace toward China.
The turn began two weeks ago with a sharp withdrawal from the futures market by hedge fund and investment bank traders, writes the Wall Street Journal's Konstanin Rozhnov. Venezuela is unhappy about the supply bulge, which has been assisted by growing volumes from Libya and Saudi Arabia. But, short of outright war involving Iran, prices look like they will continue to moderate.
I exchanged emails with Nick Butler, a former top lieutenant to John Browne at BP and now chairman of King's Policy Institute at King's College London. In an op-ed at the Financial Times, Butler forecast a plunge in oil prices, and I asked whether he thinks U.K.-traded Brent crude -- currently trading at over $117 a barrel -- will fall as far as the $80s-per-barrel range. "Who knows?" he replied. "I think [prices] will overshoot going down, and then stabilize back at $95 to $100. But that is probably too rational." Butler does not think, like some of us, that pure good sense has conquered the market for now.
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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.
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.
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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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Beijing's irritation with Washington's diplomatic activism in Southeast Asia is understandable -- great powers traditionally seek authority over the sea and land near their shores. But that is secondary. For China, the more important issue is its belief that a bonanza of oil lies beneath the South China Sea. If there are such riches, one of Beijing's premier concerns -- that it have secure access to sufficient natural resources to fuel its surging economy -- could at once shrink, along with China's reliance on the Persian Gulf.
As we speak, southeast Asian leaders are meeting in Phnom Penh, wringing their hands over how to reduce tension with China (pictured above, a show of unity). As suggested, the issue on its face is territorial -- China claims sovereignty over the whole of the South China Sea, across which half the world's seaborne trade travels, an estimated $5 trillion a year. But the actual flashpoint is oil and gas.
Southeast Asian nations, especially the Philippines, are seeking U.S. backing to fend off China as they pursue their own claims to the islands near their shores. The Obama Administration, eager to appear tough against accusations by its opponents of softness against China, has seemed happy to mediate, famously declaring a "pivot" of national interests to Asia.
Yesterday, Philippine Defense Secretary Voltaire Gazmin renewed the war of words by suggesting that China is singling out his country with intimidation tactics because Manila's military is comparatively weak. "We are below par. So of course if you are going to bully, you would look for the weakest," Gazmin said, quoted by the Philippine Daily Inquirer. "You do not get someone who is your equal."
I had a chat with retired U.S. Rear Admiral Mike McDevitt, who said that the main U.S. strategic interests are to maintain naval rights to ply and conduct military exercises in the international sections of these busy waters, and that the territorial battles be settled peaceably.
Always, however, there is oil. If the South China Sea contains as much oil as some experts think, and Chinese companies can obtain access to it, "that would solve [China's] Malacca dilemma," McDevitt said. "They would not be nearly as dependent on the Persian Gulf." He said:
In 10 years it may turn out it isn't such a big deal. ... [But] if there were no resource implications, would everybody be so anxious to stake their claim and argue about sovereignty? Perhaps, but probably not.
Tang Chhin Sothy AFP/Getty Images
Has President Obama walled off the U.S. economy from a boomerang impact from stringent new oil sanctions against Iran? He suggests he has through a furiously negotiated web of agreements with allies and especially Saudi Arabia: In a pinch, the world's developed economies will release coordinated volumes of oil from their strategic petroleum reserves, and Saudi Arabia will step up production so that the flow is steady.
It is a system designed to perfection. Which may be the problem.
In three months, the new Western-led sanctions take effect to starve Iran of oil profits, and persuade it to halt its presumed development of nuclear weapons. The idea is that Iran will manage to sell less of its current 2.2 million barrels a day of oil exports, and what it does manage to unload will have to go at a steep discount. Being hurt in the wallet, and worried about the potential political fallout, the Iranians will abruptly compromise at the negotiating table (the next round starting April 13 in Istanbul).
Specifically, the Europeans are more or less halting purchases of Iranian oil by July 1; the U.S., in turn, is threatening penalties as of June 28 against any financial institution from any country that does business with Iran's central bank. But Obama and the Europeans want to make Iran the victim, and not Western motorists, and so have expended much effort to make sure there is plenty of non-Iranian oil available. On Friday, Obama said that, while he will keep monitoring the situation, the effort has succeeded.
The plans seem aimed at responding to any Black Swan event, the type of unforeseen calamities to which we have become accustomed the last five or so years -- among them, hurricanes, spontaneous popular uprisings, financial catastrophe.
These are precisely the events that keep oil traders employed. The trading pivot is spare production capacity -- the volume of extra oil that producers can pump and send to market should there be an emergency someplace. As of now, the world has an estimated 2.5 million barrels a day of spare capacity, almost all of it in Saudi Arabia, against daily global demand of about 89 million barrels a day. When a Black Swan erupts, traders bet against the ability of this spare capacity to respond sufficiently. That is when prices go up.
The thing is, though the western-led plans seem aimed at moderating such outcomes, they seem to leave almost no latitude for contingencies (pictured above, Filipinos agitated over price increases today). This is no fault of their own, mind you -- at the moment, there simply is very little spare capacity, and no plans by companies to create any for a few more years.
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China is becoming cleaner -- ever so slightly. This is because of fresh signs of a surge of Chinese natural gas demand over the next dozen years, which is likely to tamp down the burning of coal, according to Wood Mackenzie, the energy research and consulting firm.
This does not suggest that China -- the largest source of greenhouse gases on the planet -- is suddenly going pollution-free. But the trend is tidier, WoodMac concludes in a report to be issued shortly. The Edinburgh-based firm released a teaser on the report, and I spoke with two of its three authors today.
Until now, WoodMac estimated that Chinese annual natural gas demand would almost triple -- to about 350 billion cubic meters in 2020 from about 130 billion cubic meters last year. The firm's new estimate is that Chinese annual gas demand will rise to 500 billion cubic meters by 2025, a 42 percent increase from its previous estimate.
Noel Tomnay, who heads WoodMac's global gas team, attributes the shift to a few factors: Greater Chinese intolerance of coal fumes, and increasing personal wealth, which allows Chinese citizens to pay more for cleaner natural gas-fired electricity, particularly in coastal areas; plus a desire by provincial officials for greater energy security when they are less and less sure about the reliability of coal and nuclear power. Tomnay told me:
Our view of China demand is probably higher than anything you'll find from [the International Energy Agency), from BP, from Exxon. We are very bullish on China gas demand. Our view of China gas just keeps getting bigger.
Among the news from East Africa the last two days: Italy's ENI raised its estimated natural gas reserves in Mozambique to the oil equivalent of 6.5 billion barrels, a full third greater than the 5 billion barrels it previously estimated. Up the coast in Tanzania, wildcatter Ophir Energy said a new discovery increases its offshore natural gas reserves to the equivalent of 567 million barrels of oil; that puts Ophir's total in the country at 1.2 billion oil-equivalent barrels. Scooting north a bit more, U.K. wildcatter Tullow Oil said it has discovered onshore oil in Kenya.
This flurry of announcements arrives in an already-existing boom atmosphere in East Africa, which now joins West Africa as a world-class petro-region. Mozambique's gas alone has the potential to shake up the energy and geopolitical equation in a line stretching from Europe into Asia, and the companies working there say more discoveries are on the way.
As I wrote this week at EnergyWire, this bonanza has triggered anxiety along with elation, considering Africa's long, sordid history as target of foreign resource-hunters, and home of rapacious local leaders. Recent hydrocarbon history, including the Arab Spring, suggests that drillers have a self-interest in encouraging transparent and responsible local expenditure of the oil wealth: With multiple-decade contracts, political instability can erupt in the face of avarice amid poverty (pictured above, fire last week razed the Kenyan slum of Kibera.).
Consider Mozambique, a nation of 23 million people, which has had strong economic growth for several years, but remains near the bottom of most human-development indexes. Its leaders simply have not delivered.
Against this record, ENI, which has a half-century of history in Africa, says it plans a big public-works program in Mozambique. "We are going to develop the country in terms of power plants, in terms of infrastructure, to make our presence in the country sustainable," Claudio Descalzio, chief operating officer of ENI's exploration and production division, told me.
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In a 2006 cover story in FP, the columnist Thomas Friedman described what he called "The First Law of Petropolitics." In it, Friedman revealed an inverse relationship between oil prices and the kindliness of petrocrats: As oil prices surge, the rulers of oil-producing countries tend to become inflated jerks; when prices are low, they are high-minded pussy cats.
Yet for all its genius, Friedman's law is limited: He was talking about pure petro-states such as Russia, Nigeria and Saudi Arabia. Isn't the behavior of freely elected leaders in developed economies influenced by any oil commandments?
I raise this question while observing President Barack Obama and oil companies act upon some other mutually understood political principle in the heat of the election-year campaign: Over the last week or so, American oil giants Chevron (see interview below) and ExxonMobil have suggested that Obama wise up and embrace America's inner-petrostate. Obama has responded by embracing his inner-cudgel, urging oil companies to accept a non-fossil fuel future, and meanwhile surrender $4 billion in tax breaks.
Oil is pivotal in the campaign platform of Obama's opponents. We see this most recently in finger-pointing over gasoline prices. But gasoline is not the operative hothouse for the top-line political battle. Instead, it is a sideshow to the central backdrop, which is the nation's high-stakes oil boom, a projected surge in the U.S. oil supply over the coming decade from shale oil, deepwater Gulf of Mexico reserves and imports from Canada's oil sands.
The opposing sides are capitalizing on high gas prices to advance competing, long-existing agendas -- Big Oil to pry open coveted basins underlying coastal and federal areas, and Obama to keep incubating still-early clean-energy technology.
Toward these aims, the oil industry's strategy is to persuade Americans that these closed-off lands are all that stand between U.S. independence from foreign oil, and continued fealty to those fellows governed by Friedman's First Law. For Obama, it is to contextualize the oil boom as big but historically ephemeral: Americans can bask in their gas-guzzling ways now, but must also begin to pave the way for the inescapable post-hydrocarbon era.
To state this as a corollary, there is a direct relationship between the vigor of an oil boom, and the temperature of high-flown political rhetoric. (Given the apparent hurt feelings afflicting both sides, one observes another active corollary -- a direct association between rising wealth and thinning skin, a sublaw that seems to straddle the oil and financial industries.)
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The name Bell Labs is synonymous with cutting-edge invention, winning seven Nobel Prizes (including by Energy Secretary Steven Chu) and turning out world-changing inventions like the transistor (pictured above), the silicon photovoltaic solar cell and radio astronomy. Jon Gertner, a contributing writer for the New York Times Magazine, spent five years on a history of Bell, called The Idea Factory, which came out today and is reviewed at O&G. Below, Gertner replies to questions from the Oil and the Glory.
O&G: The characters in your book often seem to be just wandering around, only to hit upon a fantastic leap of inventive and ultimately commercial imagination. Given how many countries are all about very targeted scientific and technological inquiries, is the Bell Labs formula applicable today?
Gertner: In Bell Labs' old days, an informal exchange of ideas (over lunch, during a stroll in the hallways, and so forth) was part of the innovation process. At universities and research institutions everywhere, it still is. But I don't want to give the impression that members of Bell Labs' technical staff were unfocused or lazy. They worked hard -- days, evenings, and even sometimes on weekends. And I think this hits on one of the essential challenges of writing about scientific research and engineering: Do you dramatize the two years the men worked diligently in the lab in the face of grinding frustration? Or do you focus more on the weeks when their efforts yielded real results and progress? For compelling reasons, I often chose the latter.
Whether the Bell Labs formula is applicable today is an excellent and complex question. Perhaps unsurprisingly, it has a complicated answer. First, I don't think there was one overarching Bell Labs approach. Structurally, what defined Bell Labs was a large, brilliant, interdisciplinary work force that was supplied with freedom and vast resources and a never-ending stream of technical problems within the phone system that drew on the staff's expertise. With an invention like the transistor, Bell Labs used an orchestrated effort and a mid-sized team; but the silicon solar cell was quite different. Indeed, the latter breakthrough was serendipitous: Three men, each working in different buildings, somehow connected the right technology with the right problem at the right time. Meanwhile, later innovations such as cellular phone networks and the development of fiber optic systems required vast teams of hundreds of people. I think all these approaches -- perhaps with the exception of the solar cell -- were quite targeted, and are thus still viable today. I would note some caveats, however: Research efforts are expected to move faster today, and there seems to be a lower tolerance for failure, especially if any public funding is involved. Also, an ability (or willingness) to invest for the distant future, and to thus work with a new technology through an arduous and expensive development process, seems to be in shorter supply.
If President Obama reads this interview, what would you say he should be doing in order to advance his stated aim of putting America ahead in cutting-edge technologies, especially in the clean-energy space?
My advice would be to do everything he can to support initiatives like ARPA-e. We need those breakthrough ideas. But at the same time, we've already got a lot of promising clean-energy technologies that may soon be on par, cost-wise, with fossil fuels. And I think we need to help deploy those as quickly as possible. The faster we scale up with solar and wind, for instance, the better we'll do, both in terms of lower costs and bigger impacts. So I still think the biggest difference on Obama's part would be one of policy -- for instance, a carbon tax or fee. Look, we have to give up eventually on fossil fuels. They had a good run. But they are wrecking our environment and our climate and our health and are creating political instabilities across the globe. And they are being sold and burned without any true pricing of their externalities. So why not try to embrace what is inevitable sooner rather than later? At the very least, it could prove a real boost to the economy.
Go to the Jump for the rest of the interview.
In 2005, Fu Chengyu, then-CEO of the state-controlled Chinese oil company CNOOC, wrote an op-ed for the Wall Street Journal, titled, Why is America Worried? Fu (pictured above) intended to reassure Americans that he meant no harm with a bid at the time to buy Unocal, the California-based oil company. But it did no good: Americans were in fact worried about allowing what they regarded as a strategic resource to fall into the hands of a rival country. Instead Chevron, with a lower bid, ended up with Unocal.
Today, Fu, now CEO of another Chinese oil giant called Sinopec, is back in the United States. He has been buying up minority stakes in large unconventional oil fields -- shale gas and shale oil -- through deals with companies like Chesapeake Energy and Devon Energy. The Wall Street Journal says the state-by-state total investment since 2010 between Sinopec and CNOOC has been $17 billion.
So should America again be fearful? The answer is no. Specifically, if the U.S. were presented today with a similar situation in which Sinopec, CNOOC or another big Chinese enterprise bid on a U.S. oil company, it ought to eagerly embrace it.
The reason is that, unlike with IT or other high-tech intellectual property, it is in the United States' strategic interest for China to possess its companies' cutting-edge oilfield technology, specifically how to develop shale gas and shale oil. China will keenly seize on that technology and apply it back home, with the result that pressure will be reduced on global oil prices. On shale gas, because a big find of indigenous gas is one of the only ways in which China will switch out of far dirtier coal in the production of electricity, it would be a strategic achievement if China became a first-rate fracker.
I spoke this morning with an oilman having specific interest in the subject -- John Imle, Unocal's former president. Imle said that a Chinese acquisition of a U.S. energy company -- say, Chesapeake, the second-largest gas player in the country -- would be "all upside" for the U.S. He said:
It's part of globalization and not an unhealthy part. It's positive for humanity because it results in energy supplies that are adequate so we don't have energy wars down the road. And it should provide lower-cost energy globally, which is important for the global economy. So I don't see any downside. It's all up. We want the Chinese to have plenty of gas.
Venezuela President Hugo Chavez's disclosure that his cancer has recurred raises hard questions about his ability to campaign for re-election in October. If he lacks the stamina or is incapacitated, what happens next -- will fair elections proceed, or will his ruling circle frustrate any potential transfer of power?
In short, if there is new leadership, can one imagine a shift in which Venezuela stops using its oil wealth to support a violent Colombian guerrilla movement? And will Venezuela lift constraints on oil production, and become a tipping point in the fast-changing geopolitics of oil?
The evidence to date is that Chavez, who has led Venezuela for 13 years, has prepared a tough strategy "to defend the revolution," says Stephen Johnson, director of the America's Program at the Center for Strategic and International Studies. The most recent datapoint came Monday, when a congressman's son was injured in a shooting by red-shirted Chavez supporters at a rally for opposition candidate Henrique Capriles Radonski.
The 39-year-old Radonski (pictured above), who is governor of Miranda state, appears to represent a serious popular threat to Chavez. He was elected as the united opposition candidate by a resounding majority last month. Among his platforms is a new day for the Venezuelan economy, fueled by a modern export oil industry pumping out far more crude.
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There is a comforting thought for those alarmed by Vladimir Putin's large electoral triumph, in which he suggested that his opponents are traitors and foreigners out to commandeer the Russian state. It is oil and gas, which while they fuel Putin's confidence, could also step in and serve as a leash on his tendency to over-reach.
Putin's history closely tracks the inclination of petro-rulers to shift from hubris to malleability with the decline of oil prices. Oil and gasoline prices are currently high, but they also seem close to a tipping point at which consumer tolerance could break, demand fall, and prices plunge. Deutsche Bank's Paul Sankey is forecasting a more-than 25 percent long-term plummet from that inflection point, which he puts at $135 a barrel for European-traded Brent crude. If this scenario materializes, look for Putin to revert to a friendlier form.
Are there other under-appreciated aspects to Putin's return to the Kremlin? I asked a few O&G readers specializing on Russia to weigh in. Andrew Kuchins, who runs the Russia program at the Center for Strategic and International Studies in Washington, replies that insufficient attention has been paid to the impact for U.S. foreign policy in places like the Middle East. Kuchins writes:
While Putin may be conservative and pragmatic by nature, with the United States his emotions are more raw and palpable. We are likely to need Russia's support even more in the future in management of the Afghan drawdown and Iran, and his bargaining is likely to be tougher. And if domestic troubles intensify and he feels more threatened, certainly that will not bode well for ties with Washington. Already we see inclinations for closer ties with Beijing, and, in the context of the Arab Spring, with Iran as well. It is not hard to envision further drift in this direction given certain domestic and/or external developments.
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A U.S. government-backed Silicon Valley company says it has reached a key milestone that will much-reduce the cost of producing lithium-ion batteries, whose high pricetag has been the primary hurdle making electrified cars prohibitively expensive. Envia Systems, whose shareholders include General Motors, said its improvement allows an electrified vehicle to travel for 300 miles at half the cost for the battery pack. If proven on a commercial scale, the advance could bring the price of electric and plug-in hybrid vehicles much closer to a par with pure gasoline-driven models.
There are almost weekly claims by private and university scientists to have broken through key technical hurdles preventing the commercialization of electric cars, but Envia CEO Atul Kapadia told the New York Times' Jim Motavalli that the improvement is different. "What we have are not demonstrations, not experiments, but actual products. We could be in automotive production in a year and a half," Kapadia said.
The technology is built from a breakthrough made at Argonne National Laboratory, which licensed the advance to Envia in 2008. Envia also received a $4 million grant from ARPA-E, the radical energy research laboratory at the U.S. Energy Department. GM invested an additional $7 million in the Newark, Ca.-based company. (Envia posted some of its lab data here).
The advance is in energy density -- the number of watt-hours per kilogram of kilogram of battery material. Envia says its battery cells deliver 400 watt-hours per kilogram, or more than twice the best performance currently on the market. Kapadia called the 400-watt-hour level "the holy grail of electric cars," writes Sarah Mitroff at VentureBeat. If GM could commercialize the development somewhere on the scale that Envia describes, it could make the $41,000 Volt much more affordable, writes Mitroff.
Envia's lower cost battery will give GM the chance to lower the cost of the Volt, making it more available to the general car buying public. In addition, other car companies could use the technology to create economically viable cars that could compete with gasoline-powered economy models.
Envia's announcement comes against a black eye suffered by the Energy Department for its investment in Solyndra, a solar panel company that has filed bankruptcy. To the degree the technology is proven out, it could be a public-relations boon for Arpa-E.
If Venezuelan President Hugo Chavez is forced to drop his bid for re-election for health reasons, will the primary repercussion for the West be the exit of a voluble thorn in the side? Perhaps, but it will also mean the prospect of yet more newly available oil reserves -- on top of the widely projected U.S. shale oil bonanza. The takeaway: If the shale oil projections are accurate, and Chavez leaves politics under whatever scenario, we have the prospect of a geopolitical shakeup analogous to what has accompanied the rise of shale gas.
Venezuela has the largest proven oil reserves on the planet -- 296 billion barrels, according to OPEC figures. The number is slightly misleading: Saudi Arabia's 264 billion barrels are higher quality and cheaper to produce than the extremely heavy crude of Venezuela's Orinoco Basin; yet Venezuela's reserves are so massive that such details almost don't matter.
The trouble has been that, since Chavez took power 13 years ago, Venezuela's oil production has fallen to 3 million barrels a day, 16 percent less than the 3.5 million barrels a day it produced in the 1990s. This has resulted from Chavez forcing out key members of the skilled labor force and management of the state oil company, known as PDVSA, and his marginalizing of the other source of oil patch expertise -- foreign oil companies such as Chevron and Shell.
Yesterday however, Chavez said his cancer may have recurred, reports the Associated Press -- he must go to Cuba for further treatment and scale back his frenetic pace. That bodes ominous for his attempt to hold back a groundswell of apparent support for Henrique Capriles (pictured above), his 39-year-old opponent in October elections. What distinguishes Venezuela from some other petro-states -- Russia, Kazakhstan, Azerbaijan and Iran among them -- is that power can actually change hands through the ballot box. So even though polls show Chavez with sustained popularity, he still must win. Capriles already was a serious challenger, and now he is more so.
Capriles has already said that, if elected, he will boost oil production. He also has suggested that foreign expertise will be permitted back into the country.
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The history of sanctions and smuggling suggests that China and India will be big winners from oil sanctions slapped on Iran -- among just a few remaining large buyers of Iranian crude, they will enjoy immense bargaining leverage with Tehran, and pay far lower than the global crude oil price. But how much will that discount be?
If a crisis faced by Canada is any clue, Iran's crude oil revenues -- $73 billion in 2010, accounting for most of the state budget -- are going to plunge: In Canada's case, a transportation bottleneck into the United States is forcing local producers to sell their crude at a 33 percent discount, the lowest price in some four years, write the Financial Times' Gregory Meyer and Ed Crooks. Specifically, we are talking a price of about $67 a barrel, compared with nearly $100 a barrel for the U.S. traded blend, called West Texas Intermediate.
(Before you round up a bunch of friends with pickup trucks and head for Hardisty, you'd need to buy a considerable number of barrels to profit from this anomaly. But one would expect deep-pocketed entrepreneurs to be figuring out how to add tanker cars to the rail line.)
The New York Times’ Leslie Kaufman and Kate Zernike had some fun over the weekend at the expense of an apparently large number of Americans, including a top presidential contender, who think clean energy is a subversive plot to create a world government led by the United Nations. Many people are merely annoyed by smart meters, bicycle lanes and added home insulation, but these folks say such ideas are seditious.
In 1841, Charles Mackay wrote a gem called Extraordinary Popular Delusions and the Madness of Crowds, a history of market bubbles based on misperceptions of reality. Call it what you will, but we are in a period of unusually high erroneousness when it comes to energy and the places it’s produced.
Consider the petro-state of Russia. Over the weekend, tens of thousands of people stood outside in minus-10 degree frost in Moscow in order to inform leader Vladimir Putin that he could not simply presume to swap places with President Dmitry Medvedev. What did Putin hear and see? Treacherous protestors acting under orders from Washington.
The Wall Street Journal’s Alan Cullison explains Putin’s assessment as a campaign strategy. Yet the last six years of history suggest that the former KGB officer does actually perceive a White House plot behind the outbreak of popular uprisings of recent years, including the color revolutions of the former Soviet Union and the Arab Spring. (This delusion extends to Washington, where current and former U.S. officials have informed me with serious brows of their decisive role in the color revolutions; these hands still believe that democracy is exported.)
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One becomes nervous when a consensus begins to form around a Big New Idea -- it starts to sound like group think. So what are we to make of the cottage industry developing around the notion that the U.S. not only isn't facing an impending oil shortage -- it is on the cusp of being nearly energy independent, short of a margin of barrels that will be imported from friendly Canada and Mexico?
As discussed over the weekend, Clifford Krauss of the New York Times and oil consultant Daniel Yergin, writing at the Washington Post, have published long pieces marveling at the emerging picture of a hydrocarbon bonanza in the United States and right on its borders. Today, the Financial Times' Ed Crooks adds a third lengthy analysis to this growing train, suggesting that by 2035, the U.S. and Canada together could be producing a whopping 22 million barrels of oil a day -- more than twice the current volume - and thus requiring almost no other crude from anywhere. Add up oil shale from North Dakota (pictured above, North Dakotan oil camp), Texas and elsewhere; Gulf of Mexico crude; natural gas liquids from shale gas; plus Canadian oil sands, and you get the picture. In combination, the analyses leave one with whiplash.
How surprising is this shift? In his Washington Post piece published Sunday, Yergin describes the emergence of a "new world oil map ... centered not on the Middle East but on the Western Hemisphere." But just six weeks ago, Yergin published The Quest -- his comprehensive, 754-page fresh dive into global energy -- which not only doesn't mention such a shift, but describes a continued Middle East-centered oil universe in which the notion of energy security is a mere "mantra." Yergin already needs to go to an updated second edition.
What could undermine the prognoses is if the result is relatively low oil prices, and a resumption of America's gluttonous gasoline appetite, which would erode millions of barrels of oil a day. Still, Crooks finds solace in the volumes further afield, but still in the Western Hemisphere: "Even if the most optimistic hopes are not fulfilled," he writes, "one can imagine a future in which the U.S. imports oil only from Canada, Mexico and a handful of other friendly countries such as Brazil."
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We know the narrative: Foreign wildcatter shows up in dirt-poor country; said wildcatter discovers gusher; country becomes the beneficiary of untold wealth; dictator and family steals wealth; country and its populace are blighted by retarded growth. Known variously as the resource curse and the paradox of plenty, this fashionable malaise is said to be responsible for the troubled economies of places like Chad, Equatorial Guinea and Nigeria.
It's plausible logic -- and not just in the case of oil, but across commodity classes. Yet when the roustabouts show up to drill, what we typically fail to ask is this chicken and egg question: Did the curse arrive with the resource, or were the conditions already ripe for economic hell? A quick glance at the institutional successes surrounding resource finds in the North Sea in the 1960 and the 1970s, and one starts to question the assumptions underlying the storyline.
With hard (and soft) commodities trading at remarkably high benchmarks, the resource curse is back in style over at the International Monetary Fund, which fleshes out the subject in Beyond the Curse: Policies to Harness the Power of Natural Resources, a volume of essays edited by Rabah Arezki, Thorvaldur Gulfason and Amadou Sy. The rationale behind continuing to study curse theory is valid enough: Again and again we find producer states failing to work out how to cash in on the bonanza flooding their coffers without skewing and contorting their economies. The puzzle applies as much to a politically beleaguered but oil-rich Middle East as it does to a chronically underdeveloped but resource-laden Africa, not to mention recently liberated Libya. It confronts developed economies in Europe, learning to manage the wealth from dwindling resources more carefully; BRIC states like Brazil and Russia's Vladimir Putin, who is challenged to do better the second time around to enrich the Russian people -- not just the oligarchs - along with the rising behemoth China, which is viewed with suspicion for its investment in resource-rich states. A natural gas boom in Australia has people coping with the effects of an overpriced Kangaroo dollar.
A much-trumpeted partnership of one of today's most celebrated scientists and the world's largest publicly traded oil company seems stalled in its aim of creating mass-market biofuel from algae, and may require a new agreement to go forward. The disappointment experienced thus far by scientist J. Craig Venter and ExxonMobil is notable not only because of their stature, but that many experts think that, at least in the medium term, algae is the sole realistically commercial source of biofuel that can significantly reduce U.S. and global oil demand.
Venter, the first mapper of the human genome and creator of the first synthetic cell (pictured above), said his scientific team and ExxonMobil have failed to find naturally occurring algae strains that can be converted into a commercial-scale biofuel. ExxonMobil and Venter's La Jolla, Ca.-based Synthetic Genomics Inc., or SGI, continue to attempt to manipulate natural algae, but he said he already sees the answer elsewhere -- in the creation of a man-made strain. "I believe that a fully synthetic cell approach will be the best way to get to a truly disruptive change," Venter told me in an email exchange.
Venter made his remarks before a conference this week on the future of energy at the New America Foundation in Washington, D.C., and in subsequent emailed replies to questions.
Read on to the jump for the rest of the story including Q&A.
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The shakeup over shale gas -- a newly available fuel that has overturned assumptions about energy, climate-change and geopolitics -- has now stretched across the Atlantic to England. A drilling company backed by John Browne, the former CEO of BP, says it has discovered the gas equivalent of up to 35 billion barrels of oil. In oil, a find of 1 billion barrels is regarded as a supergiant.
Until now, the United States has been the epicenter of the shale gas disruption. This gas is locked into barely porous shale rock a mile and more beneath the surface of the Earth. Over the last few years, drillers have extracted the gas using a method called hydraulic fracturing, or fracking -- injecting a mixture of water, chemicals and sand at high pressure into the rock -- which has produced a bonanza of new supplies in the United States. Estimates are that it is sufficient to meet current U.S. consumption for a century.
Since gas emits just a third to a half the CO2 as coal, this gas glut -- to the degree it results in an accelerated shift away from coal-fired to gas-fired power plants -- could lower U.S. emissions of heat-trapping gases. As for geopolitics, the gas has already had the boomerang effect of casting doubt on Russia's economic and political leverage in Europe -- Russia supplies more than a quarter of Europe's gas, but the shale gas glut has challenged that market dominance.
All this impact has led to a search for shale gas elsewhere, especially in Europe and China.
Yet with the shale gas comes a backlash of local politics. In the U.S., drillers have been confronted with a furious protest movement of critics who say fracking contaminates drinking water supplies. In Europe, the protests have preceded any discoveries -- in the summer, for instance, France banned fracking.
Now, a U.K. company called Cuadrilla Resources says it has indications that a formation called the Bowland Shale is comparable in scale to the best U.S. finds, reports Guy Chazan at the Wall Street Journal. Cuadrilla's Dennis Carlton told Bloomberg's Ben Farey that the thickness of the gas-laden shale -- 3,000 feet in places -- is up to 10 times that of the ultra-rich Marcellus Shale that underlies New York and Pennsylvania. Cuadrilla's main investors include the hedge fund Riverstone Holdings, which is run by former BP CEO Browne.
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.