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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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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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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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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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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Let's say that the new conventional wisdom is correct -- that we ought to dispense of worries of resource scarcity, and embrace a dawning age of U.S. oil abundance and self-sufficiency. If we ask ourselves what that means, one conclusion is the apparent elimination of a central rationale for the development of clean energy technologies -- that the U.S. needs them to shed its reliance on unreliable oil imports from nefarious Middle East nations.
Clean-tech must be scrutinized through a political lens, because by and large, none of the technologies stands on its own feet as yet in the marketplace. They require political support to survive. Let's take a look at the calculus for clean-tech.
Industry analysts and journalists assert almost weekly (like Citigroup's Ed Morse and reporters at the New York Times) that U.S. shale oil and deepwater reservoirs, plus Canadian oil sands, are making the U.S. virtually self-sufficient in oil. (I myself have urged caution in this exuberance.)
In response, President Barack Obama said last week that oil drilling is not the "be-all, end-all strategy" of being energy self-sufficient, but rather that the U.S. requires "all of the above," meaning solar, wind and biofuels, too. He said this because he wants to retain federal support for cleantech companies and research, but is being pummeled by opponents who call such assistance a boondoggle, and accuse him of hostility to oil. The other reason he said this is that gasoline prices in much of the country are well over $4 a gallon.
Already, politics have knocked out another pillar of the clean-energy foundation -- the push to hold down CO2 emissions. Since there is no longer apparent majority U.S. political will to stave off global warming, clean-tech has seemed to lose that logic for public support.
Now goes the argument of energy security: If the forecasts of a U.S. bonanza are accurate, biofuels, advanced batteries and other technologies will be unneeded for the purpose of energy freedom from the Middle East.
With planetary collapse and energy security eliminated from the calculus, clean-tech would be back to basics -- its sole apparent remaining case for public policy support, at least in the U.S., would be the popularity of things clean. Promoters of these technologies would either have to make that case, or become cost-competitive and survive in the marketplace.
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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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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 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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The war of tight oil: Are we in an age of oil plenty, or a stubborn era of scarcity? The folks with skin in the game are among those who cannot agree. At Citigroup, Seth Kleinman leads a group of analysts (including the venerable Ed Morse) who issued a note to clients this week declaring "the death of the peak oil hypothesis," a belief that there is a limit to how much oil can be produced. The actor in this murder is shale oil, the sister to shale gas, which is being unleashed from hard underground shale through the application of hydraulic fracturing. "The U.S. appears to be on course, after many weak starts, to achieve energy independence this decade," Kleinman writes. In a shot over the bow of doubters, the Citi team snickers at those who cannot notice the truth before their eyes: "We expect industry expectations to lag behind reality, just as they did with shale gas for many years." They go on to tally up how they see the new oil patch:
U.S. crude and product imports are now about 11 million barrels a day, with about 3 million barrels a day of product exports. This leaves import reliance at 8 million barrels a day. If shale oil grows by 2 million barrels a day, which we think is conservative, and California adds its 1 million barrels a day to the Gulf of Mexico's 2 million barrels a day, we reduce import reliance to 3 million barrels a day. Canadian production is expected to rise by 1.6 million barrels a day by 2020, and much of this will effectively be stranded in North America, and there is the potential to cut demand both through conservation and a shift in transportation demand to natural gas by at least 1 million barrels a day and by some calculations by 2 million barrels a day.
Voila, U.S. energy independence.
Not so fast, say the analysts at Barclays Capital, who issued their own, nearly simultaneous note to clients saying the opposite. The note, by Paul Horsnell and Amrita Sen, suggests that Barclays' clientele guard against "the near-euphoria surrounding the potential of oil shales in the U.S., together with a natural bias in the market to be overly optimistic on oil supplies." The oil market is extremely tight, made the more so by political upheaval, says the Barclays team. They write:
While posing some stirring prospects following almost a decade of dismal performance by non-OPEC supply, oil shales alone are simply not enough to offset the decline in other parts of non-OPEC and meet all the incremental demand growth. The scale of growth in U.S. output really needs to be put into perspective. North Dakota still only produces 0.5 million barrels a day, which in a weak year, incremental Chinese oil demand alone can consume all of and more. Does shale oil help the U.S. reduce its dependence on foreign oil? Yes, it does. But does it remake the U.S. into the next Saudi Arabia? No, at least not yet.
There you have it.
Go to the Jump for more 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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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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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.
The U.S. presidential election, energy and saving America: In the 2008 U.S. presidential campaign, one defining difference in the two major candidates was their approach to energy. Barack Obama promised green jobs and a cleantech-based manufacturing resurgence, and John McCain's supporters retorted "Drill, baby, drill." So far, the signs are that these themes will be reprised just as volubly four years later. For their part, the Republican candidates are pounding the table that, though faced with almost 9 percent unemployment, Obama is failing to tap a fail-safe job creator --the oil patch. So far, the cream of the U.S. energy braintrust is more in line with Republican thinking. This week, BP joined prior forecasts by Goldman Sachs, Edward Morse, Daniel Yergin and others in suggesting that the U.S. is on the cusp of a new industrial revolution based on a shift that, as far as I can tell, none of them was talking about until about four or five months ago. At once, say these Wise Men, the U.S. along with the whole of the Western Hemisphere is about to be saturated in fresh oil reserves on top of the shale gas already in abundance. This fossil fuel bonanza - in the ultra-deepwater Gulf of Mexico, the shale of North Dakota, the sands of Canada and elsewhere -- will put millions to work, and activate a boom in energy-intensive industries, they say. In Alberta a few days ago, Citibank's Morse, the most formidable intellect in the bunch, described a generations-long, petro-driven economic boom built on petrochemicals, fertilizers, steel, housewares, pantyhose and more. Social thinker Joel Kotkin places these energy developments within a larger narrative that he calls "America's Moment." This group is battling it out for when it all begins, ranging somewhere in the next five to 30 years.
One Republican talking point is to scorn Obama's rejection of the 800,000-barrel-a-day Keystone bitumen pipeline from Canada to Texas. Here is Newt Gingrich, the winner of today's GOP primary in South Carolina (also pictured above):
Read on for more on American reindustrialization, and the rest of the Wrap.
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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."
Last summer, a galactic cluster of energy experts informed us that the U.S. economy was failing to reignite in part because the Obama Administration was barring sufficient oil drilling in the Gulf of Mexico. Just three months later, the same experts say the U.S. is awash in domestic oil, and perhaps on the verge of independence from foreign oil. Serious journalists in Europe and the U.S. are sold on this ostensible shift, with all the geopolitical ramifications.
But what has changed? Not the fundamental numbers -- drillers were not oil-poor in August, only to be swimming in hundreds of thousands of barrels more of crude today. Instead, one suspects that politics are partly responsible for both the old and the new conventional wisdoms. As Rachel Leven writes at The Hill, 33 lobbying firms are swarming Washington alone to persuade decision- and opinion-makers on the critical importance -- or trifling unimportance -- of energy independence, in this case as represented by the question of whether to build a pipeline to Canada's oil sands.
In other words, folks with skin in the game are leading the innocent among us to conflate "the fortunes of the oil industry with those of the international system," Michael Levi suggests on his blog at the Council on Foreign Relations. Last summer, it suited industry consultants to assert that the sky was falling, while now it is best to give hope for the achievement of a four-decade-old vapidity -- that the U.S. is best off importing no oil. Is it also best for China to import no oil -- is it hostage to Middle East volatility?
Other new conventional wisdoms are being road-tested as well. For instance, for a long time Americans have been led to worry that China is going to eat their lunch when it comes to jobs and economic wealth. Now, a spate of high-profile pieces suggest that Chinese innovation actually is good for the declining West.
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About the impending arrival of U.S. energy independence: We return to the twist in our energy and geopolitical circumstances that we are hearing about -- that, contrary to the drumbeat regarding peak oil to which we have become accustomed, there is no problem on the global energy patch. There is abundant oil, report the New York Times, the Washington Post and the Financial Times; not only that, it is located in the nearby, secure Western Hemisphere (pictured above, happy days in Brazil), and not in the violent-and-volatile Middle East; moreover, the United States may be on the verge of achieving what had seemed to be merely fabled -- "energy independence." We expressed our doubts about these findings when they emerged a few days ago. And though this is not a peak-oil blog, suffice it to say that our brow has not become less furrowed. One reason is the mathematics behind the theoretical revision. Let's start with the suggestion that the gravitational center of oil is shifting from the Middle East to the Western Hemisphere, as we read in the Times, the Post, and last month here at Foreign Policy. In order for that to happen, Western Hemispheric oil production should comfortably surpass the Middle East's 25 million barrels of oil a day. When you add up the numbers, North and South American producers currently pump some 21 million barrels a day. The bright-picture scenario suggests another 7-9 million barrels a day (additional supplies of 3 million barrels a day from Brazil, 1.5-4.5 million barrels a day from Canadian oil sands, and 2.5 million barrels a day from U.S. onshore oil shale). Shaving off a bit for depletion of current fields, and you get roughly the same production for the concentrated Middle East as for the far-flung Western Hemisphere, with no single country bearing the singular heft of a Saudi Arabia. It is a tidy volume, but not quite the forecasted tectonic shakeup.
Go to the Jump for more on U.S. energy independence and the rest of the Wrap
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Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.