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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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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More where that came from: When it comes to oil, people generally cluster in glass-half-full, and glass-half-empty groupings. The former are led by techno-optimists such as industry consultant Daniel Yergin who believe that, given a higher price, oilmen will always manage to extract more barrels from a given field. The latter fall somewhere under the rubric of peak-oilers, who believe that supply is already stretched thin, and that unless alternative fuels scale up fast, the world must prepare for a hand-to-hand struggle for resources. The Financial Times' Sheila McNulty dives into the debate as part of a special section of the paper this week entitled "Modern Energy". McNulty profiles Chevron's work in Texas' Permian Basin (pictured above: boom days at another Texas oil region -- Spindletop), where since the 1920s the company has produced a whopping 30 billion barrels of oil, and reckons that it will extract an equal volume in the coming years. Chevron and the rest of the industry are moving into the age of the "intelligent oilfield," in which they are using visual technology "to see thousands of feet underground to where the oil remains stuck, so as to pinpoint and target a specific zone for further recovery," she writes. The piece tilts toward the glass-half-full folks. As punctuation, she quotes Dallas Parker, a partner at the law firm Mayer Brown: "Every time the oil price goes up, people find a way to get more oil out," he tells her. "It's all a function of the price of oil and the technology."
Annals of China's clean battery movement: Authorities in Shanghai have shuttered a battery manufacturing plant run by the U.S. company Johnson Controls through the end of the year. The reason is lead -- a wave of alarm has spread through Shanghai and other Chinese cities regarding the use of lead in manufacturing, and the health risks to children, writes James Areddy in the Wall Street Journal. For instance, just last month a court imprisoned the president of electric-bicycle-maker Suqi Battery for 15 months because of the suspected lead poisoning of some 100 villages near Hangzhou. Milwaukee-based Johnson Controls categorically disputes that it's responsible for any lead poisoning in Shanghai. In fact, writes Areddy, the company's lead standards are far tougher "than Chinese law requires, permitting one-seventh the amount released into the air as allowed in China, and one-tenth what China's water standards allow." Rather, it appears that Johnson is being shut over a quota issue -- by last month, it had already exceeded its annual manufacturing limit. As this blog has reported numerous times, the Chinese are surprisingly intolerant of pollution, and are pushing back against the hell-bent pace of economic growth, what is locally called "blood-soaked GDP."
Read on to the jump.
The global oil industry is in a fix. It's still trying to persuade Washington to revive access to the Gulf of Mexico, one of the world's sole remaining dictator-free oil-rich zones, and it's locked out of Libya for the foreseeable future. Meanwhile, its greatest recent coup -- a technological breakthrough that has unlocked a bonanza of natural gas locked in shale in the United States -- is under threat by homeowners and activists across the country who question whether the method is environmentally safe. On top of all this, global oil demand is rising fast along with robust economic recovery, and the world will pour terrible scorn on the industry if, despite the hurdles, it fails to supply sufficient oil and natural gas to fuel everyone's cars, homes and factories.
Such is the outlook of Christophe de Margerie, CEO of the French oil company Total, and by far Big Oil's most plain-spoken (and most distinctively mustachioed -- see above) representative. He delivered it to a packed house of about 1,500 of his peers, gathered in Houston for the opening session of CERAWeek, the Davos of the oil industry, a conference hosted by Dan Yergin, author of The Prize.
De Margerie's somewhat counterintuitive prescription for the industry? In order:
1. Hunt aggressively for oil and gas;
2. When you find it, make sure to produce it in a way that non-oil industry folks can live with;
3. Meanwhile, get the world to use less oil and gas.
Why should oil companies persuade the world to use less of its product? Because, asserted de Margerie, starting in just a few years, the industry will be incapable of producing as much as the world wants. In his reckoning, demand for oil will surpass the current 87.5 million barrels a day, but various hindrances will prevent the industry from producing much more -- it can increase supply by an additional 8 percent, to about 95 million barrels a day, but "it's impossible to go higher."
When big-thinkers at companies with the most skin in the energy game are behind closed doors and they discuss how the world really looks going forward, do they say that there are bumps in the road but that things will be fine, just fine, as they suggest publicly? Three years ago, we got a glimpse into the room when Royal Dutch/Shell issued a scenario forecasting the world in 2020. Based on current economic and energy-use patterns around the world, Shell said that energy supplies will be so tight that they will tip the world into a full-blown crisis in which governments will force their populations to reduce driving, use less electricity, and pay an extremely steep increase for what they do consume. There will be a massive, decade-long economic slowdown, and geopolitical power will shift dramatically to energy-producing nations, the company said.
Today, Shell returned with an update. The company said that the 2008 financial crisis interrupted the slide it predicted, but that the clock has begun ticking again. If the world does not change how it uses energy, its scenario will hold true.
In recent weeks, we've heard almost identical energy-consumption projections from ExxonMobil (here is Exxon's neat slide show), BP and now Shell: The world will use about 40 percent more energy by 2030. The difference is that Exxon and BP more or less just toss out the numbers, while Shell suggests that one might consider running for the hills, oh, sometime around 2016 or 2017 before everyone else shows up. You all can plan to return home around 2030, Shell has said, when the world has come to its senses and adopted all the efficiency and price-signal mechanisms that some forward-thinkers are suggesting now.
There is some optimism in the report, such as descriptions of actions by nations like Japan and Norway and companies like Wal-Mart to lower greenhouse gas emissions. But the United States, for example, has not reversed energy-use practices that helped lead to the Shell scenario, the company says.
I myself tend to believe that, although it looks otherwise at the moment, nations will not put themselves in the collective position of unhappiness described by Shell. For example, there will be an even greater than projected shift to plentiful natural gas, thus tempering Shell's projections. Yet, it's worth reading on to the jump for more about the reports. Meanwhile, for the visual-minded, here is Shell's glossy video presentation.
Alain Jocard/AFP/Getty Images.
A senior Saudi Arabian oil official said in 2007 that the kingdom has 388 billion barrels of recoverable crude oil reserves, about 45 percent more than official public estimates. But about the same time, a retired Saudi Aramco executive met with U.S. diplomats in Dhahran and asserted that the country's figures in general are wildly overblown, and that it is headed for a production peak around 2020, followed by a slow decline according to new WikiLeaks cables.
The issue is pivotal. Put simply, the price of oil -- the price you are paying at the pump, indeed the cost of everything in your home -- is wholly determined by what oil traders think Saudi reserves and production capability really are. As an example, oil plunged yesterday to its lowest price of the year -- $87.87 a barrel -- when Saudi Arabian Oil Minister Ali al-Naimi (pictured above) suggested that the kingdom will put new oil supplies on the market to compensate for any uptick in global demand.
The thing is, the Saudis are highly secretive about these figures -- unlike almost every important petrostate on Earth outside the Middle East, the Saudis will not permit their oil fields to be independently audited. One might wonder why that would be the case, and the late Matt Simmons, for example, made much hay suggesting that the reason is that the Saudis simply don't have as much oil as they claim. I myself got ahold of documents back in 2008 suggesting the same. Sensible voices, however, said such are the thoughts of the conspiratorial-minded and that the Saudis genuinely possess what they claimed -- they were denying the right to verify because … well because that's just what they do. Here is classic Simmons:
In recent years, the Saudis have brought more productive capacity on line, giving them the capability of producing about 12 million barrels of oil a day. Since the Saudis are currently producing about 8.6 million barrels of oil a day, according to the U.S. Energy Information Administration, that means they alone are providing the world about 3.4 million barrels a day of "spare capacity," the key metric for oil prices. Basically, traders looking to earn really big money on the tick up or down of daily oil prices focus intently on global supply -- for example, tons of money have been earned in recent weeks speculating on the question of what happens if events in Egypt spiral out of control, and force the closure of the Suez Canal, the transit route for about 1.5 million barrels of oil a day. But the existence of a healthy cushion of spare capacity works against such fruitful speculation, because even if the Suez Canal does become totally bottled up, the Saudis can turn up the spigot, and it won't matter a whit. Which is one big reason why oil prices are down again.
Which brings us to the latest Wikileaks cables, so read on.
Fayez Nureldine AFP/Getty Images.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.