Just months after an enormous discovery of natural gas off the coast of Israel, a local company has reported another potentially big strike -- an estimated 1.4 billion barrels of oil, in addition to more natural gas. The company, Israel Opportunity Energy Resources, says it will start drilling by the end of the year. All of a sudden, Israel has found itself a focus of the world's hydrocarbon interest.

Energy experts are tittering about a prodigious new golden age of oil and gas in the Eastern Mediterranean, where Israel and Cyprus could become substantial oil and natural gas exporters, in addition to some other surprising places including French Guiana, Kenya, North Dakota, and Somalia. All in all, say increasingly mainstream projections, the world is moving into a period of petroleum abundance, and not the scarcity that most industry hands embraced just months ago. Plus, the United States, or at least North America, may be on the cusp of energy independence while OPEC's days of über-influence are numbered.

What these experts have not said, however, is that while this new golden age may indeed shake up the currently rich and powerful and create new regional forces, it could also accelerate the swamping of the planet in melted Arctic ice. So much new oil may flood the market that crude and gasoline prices might moderate and lessen consumer incentives to economize. "In the absence of U.S. leadership, I tend to agree with NASA's James Hansen that it is 'game over for the planet,'" Peter Rutland, a professor at Wesleyan University, told me in an email exchange.

This unspoken flaw in the golden-age scenario suggests it might not unfold so smoothly. The projected turnaround of oil's sagging fortunes may indeed herald economic salvation for the U.S. and global economies. But the environmental consequences could also trip up its full realization.

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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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Energy Independence Edition

How do you know you are living in a petro-state? With all the talk of a historic U.S. oil boom, I wondered how Americans can truly know whether and when they are again residing in an official petro-state, like in the days of John D. Rockefeller. Given the invective-laced presidential election, I wondered whether we might see either Barack Obama or Mitt Romney, shirtless, hunting a tiger while hurling curses at one another. Then I turned to a few regular O&G readers. Here is a smattering of their responses:

**"Hollywood celebrities attach Texas longhorn bull horns to the hoods of their cars. ExxonMobil acquires Saudi Aramco. The American Petroleum Institute buys out the Center for American Progress, Sierra Club and the Natural Resources Defense Council."

     John Hofmeister, author and ex-president of Shell USA

**"Barack Obama discovers ancient urns while inspecting oil spill damage on the Gulf Coast."

      Michael Levi, Council on Foreign Relations

**"Secessionist movement breaks out in North Dakota."

     Ed Chow, Center for Strategic and International Studies

**"Americans see buying an electric vehicle as unpatriotic, vilify companies that make them as government stooges, and proudly fly the flag from the top of their new 16 mile-per-gallon SUVs."

     Andrew Holland, American Security Project

**"When did the US *stop* being a petro-state?"

     David Biello, Scientific American magazine

Go to the Jump for the rest of the Wrap.

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A coming U.S. renaissance -- and an oil price crash: Citibank's Ed Morse unloads a monster, 92-page report forecasting no less than a new American Industrial Revolution. This economic resurgence is carried on the back of low natural gas prices as far as the eye can see (pictured above, hydraulic fracturing in Pennsylvania), in addition to a shale-oil, oil-sands, deepwater-oil boom that makes the U.S. "the new Middle East." In line with other top analysts, notably Deutsche Bank, Morse forecasts a tight global market in the next few years, notwithstanding the U.S. abundance, with the suggestion that prices will be high as well. But nirvana will arrive by the end of the decade with the convergence of U.S. oil abundance and a burst of production from west and east Africa, the Gulf of Mexico, India and the Caspian Sea. By the 2020s, we will see maximum oil prices of $85 a barrel, Morse writes in a teaser at the Wall Street Journal. There are of course potential geopolitical consequences, Morse writes:

It is unclear what the political consequences of this might be in terms of American attitudes to continuing to play the various roles adopted since World War II -- guarantor of supply lanes globally, protector of main producer countries in the Middle East and elsewhere. A U.S. economy that is less vulnerable to oil disruptions, less dependent on oil imports and supportive of a stronger currency will inevitably play a central role globally. But with such a turnaround in its energy dependence, it is questionable how arduously the U.S. government might want to play those traditional roles.

I have noted previously that some of us are suffering whiplash since just a few months ago the conventional wisdom was energy scarcity. One is inclined toward caution regarding the new narrative of abundance, such as we see in the lead story today in the New York Times, where Clifford Krauss and Eric Lipton depict a future of "independence from foreign energy sources." Morse, the dean of oil analysts, must be taken seriously. Yet the forecast oil bonanza is still largely on paper -- the crude is not pumping through the country's petro-arteries. What if oil prices drop? Will the economics still support the type of drilling described? I urge continued and watchful caution.

Go to the Jump for more on the energy boom and the rest of the Wrap.

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The trouble with cerium, and the murky world of rare earth elements: The opaque rare-earths wars are upon us again, now made part of U.S. presidential politics. They go back to 2010, when a Chinese tuna fisherman named Zhang Qixiong became an international celebrity by ramming a Japanese naval cutter, and improbably triggering an international crisis over the availability of so-called rare-earth metals. These are the 17 elements that we care about because they make possible our wind turbines and electric cars, not to mention our iPhones and flat-screen TVs. China, which mines some 97 percent of the global supply, cut off rare-earth shipments to Japan in response to the trawler incident, and for awhile seemed to do so for much of the rest of the world, too. Since then, mines have been under development in other countries, such as Molycorp. in California and Lynas in western Australia (pictured above, Lynas builds a rare earths processing plant in Malaysia).

But these alternative sources are not quite up to speed as yet. So on Tuesday, President Barack Obama announced that the U.S. joined Japan and the European Union in a formal complaint against China's rare-earths policy with the World Trade Organization. The accusations include that Beijing allowed its rare-earth traders to export just 55 percent of their quota last year, specifically 18,500 tons of the 33,000 tons permitted. Export prices averaged $104 a kilo last year, double those available within China, reports Kevin Allison at Reuters. To which Chinese officials and writers retort that in fact demand has been weak, and that Western end-users simply didn't buy the full quota.

What is really going on? I asked Jack Lifton, a Detroit-based rare-earths expert, whether he could make some sense of the conflicting accounts. Lifton wrote back:

I think the ‘not willing to sell' meme is a misinterpretation of the mechanics of the rare earth market. Chinese traders who have allocations for export were up until last year getting total tonnage allocations (i.e., they would get an allocation of 100 tons, for example). It didn't matter last year whether or not the exporter sold 100 tons of dysprosium for $200 million or of lanthanum for $10 million. So you can guess which one they tried to do. Since critical rare earth metals such as dysprosium are in much shorter supply than the ones of little or no use such as cerium (50 percent of all rare earths mined), the inventories rapidly became skewed. Many Chinese exporters did as they have always done: They told buyers that if they wanted one ton of dysprosium, they had to take 99 tons of cerium, too, or get nothing. This game has been going on for years in the neodymium-for-magnets trade. In any case, the pressure on the Chinese traders to get rid of expensive inventory wiped them out of the neodymium and dysprosium, terbium, and europium that they could get. So they are whining that the round-eyed and slanted-eyed imperialist warmongers and their running dogs don't want the cerium, and we don't want the jerks in Beijing to figure out their mistake, so we will say we weren't allowed to sell.

The Beijing boys figured it out last year, and allocations are now by individual rare earth.

Go to the Jump for more on rare earths, and the rest of the Wrap.

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Consider the latest news from the Middle East and North Africa, and one grasps why many U.S. oil and geopolitical analysts are cheering what they see as a prospect that the country will seriously trim its oil imports.

At the Financial Times, Javier Blas describes a drop in Saudi Arabia's pivotal capacity for bailing out the global oil market in a pinch, quoting a new report by the International Energy Agency; the IEA says natural oil field decline has eroded Saudi's spare production capacity. Nearby in Iran, the standoff with the West has resulted in a 15 percent risk premium on top of market oil prices, writes Bloomberg's Ayesha Daya; traders worry of a loss of much oil to the market should the tension escalate.

Meanwhile in Iraq, oil giant ExxonMobil -- hard-pressed like the rest of the industry to find new reserves -- has been barred from a new round of presumably world-class oil leases, reports the Wall Street Journal's Hassan Hafidh; Exxon is subject to this punishment for signing an independent oil deal with the northern Iraqi region of Kurdistan, with which Baghdad is in a long spat over revenue sharing.

And in Northern Africa, Sudan has reportedly seized another 2.4 million barrels of oil from South Sudan, which continued a two-week-old halt to its 350,000-barrels-a-day of oil exports, writes Reuters, and an outbreak of fighting between the neighbors seems possible.

Against this exceptional Middle East turmoil -- events with reverberations around the world -- Lou Pugliaresi of the Washington-based Energy Policy Research Foundation tells me that in just five years, U.S. oil imports by sea are likely to fall to 4 million barrels a day, or less than half today's level (see slide eight). Pugliaresi credits a rise in oil production from far more predictable places -- a 1.5 million-barrel increase in U.S. unconventional oil production (oil shale and tight oil from North Dakota, Texas and elsewhere), plus more oil sands imports from Canada.

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In his State of the Union address last night, President Barack Obama spoke of the United States' unaccustomed new impact on global energy -- in addition to its habitual role as a world-class oil glutton, the U.S. is delivering a growing volume of oil and natural gas that has already shaken assumptions, and looks likely to roil geopolitics in a way favorable to Americans.

The speech put a spotlight on a new trend of plenty in the U.S. oil patch: On Monday, the U.S. Energy Information Administration reported that the U.S. is in the midst of a dramatic turnaround -- by the year 2035, U.S. demand for imported oil will have fallen by 18 percent, to some 7.36 million barrels a day, or a respectable 1.6 million barrels a day less than last year's volume.

Obama was citing the shift as a way to outflank Republican opponents and oil industry lobbyists who, as we've discussed, intend to spend outsized sums of campaign dollars on claims that he is choking oil production and jobs creation. Against that, Obama threw the oil and gas bonanza into a package, and said that the U.S. must both drill and spend much on futuristic clean-energy technology. The Republican response, by Indiana Gov. Mitch Daniels, suggested that Obama is an anti-oil ideologue.

That is politics, and we are sure to hear much on this subject from both sides through November.  What is most interesting from my own standpoint is the sober feel of the EIA's findings after the growing accumulation of punch-drunk forecasts from others: From an array of our best energy minds -- at ExxonMobil, BP, Daniel Yergin's CERA and others -- we have heard that, with the help of Canada and Mexico, the U.S. on the verge not only of the bright future described by the EIA, but of achieving the mythical state of energy independence (strike the operatic score.). These Wise Men foresee a doubling of North American production to a whopping 22 million barrels a day.

Among the geopolitical impacts of such a shift would be far more proportional influence from Middle Eastern and other petro-potentates. There would be more political balance.

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We recently remarked that a flurry of expert and news reports on the impending arrival of U.S. energy independence bore a striking resemblance to a lobbying campaign -- at a time of unusual economic distress, you dress up your long-time drilling wish list as a jobs initiative, and a way to achieve the decades-old romantic goal of independence from Middle East oil, and you have a salable pitch. Now, the other shoe has dropped -- the narrative has morphed into a full-throated presidential election-year campaign by Washington's leading business and oil lobbying groups. The chief message: Do what we say, Barack Obama, or else, reports the Financial Times' Ed Crooks.

Jack Gerard, chief Washington lobbyist for the oil industry as CEO of the American Petroleum Institute, unveiled the campaign yesterday. The spearhead is a push for Obama to approve the Keystone Pipeline, a proposed 1,600-mile line that would double the flow of Canadian oil sands to Houston-area refineries. If Obama fails to approve Keystone by a Feb. 21 deadline established in an unrelated deal with Congress, the institute and its friends will help to make sure that he suffers "huge political consequences," Gerard warned, reports the Associated Press' Matthew Daly.

But if Obama goes along with Keystone, and takes further steps including opening up long-closed offshore zones to drilling, the outcome in 15 years will be U.S. energy self-sufficiency, said Gerard, who calls his campaign "Vote 4 Energy."

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