Is Barack Obama sufficiently dirty to win re-election? Not according to presumptive Republican nominee Mitt Romney, who says the president is too spic and span.
Calculating that clean energy is passé among Americans more concerned about jobs and their own pocketbooks, Romney is gambling that he can tip swing voters his way by embracing dirtier air and water if the tradeoff is more employment and economic growth.
Romney's gamble is essentially a bet on the demonstrated disruptive potency of shale gas and shale oil, which over the last year or so have shaken up geopolitics from Russia to the Middle East and China. Now, Romney and the GOP leadership hope they will have the same impact on U.S. domestic politics, and sweep the former Massachusetts governor into the White House with a strong Republican majority in Congress.
A flood of new oil and natural gas production in states such as North Dakota, Ohio, Pennsylvania, and Texas is changing the national and global economies. U.S. oil production is projected to reach 6.3 million barrels a day this year, the highest volume since 1997, the Energy Information Agency reported Tuesday. In a decade or so, U.S. oil supplies could help to shrink OPEC's influence as a global economic force. Meanwhile, a glut of cheap U.S. shale gas has challenged Russia's economic power in Europe and is contributing to a revolution in how the world powers itself.
But Romney and the GOP assert that Obama is slowing the larger potential of the deluge, and is not up to the task of turning it into what they say ought to be a gigantic jobs machine. The president's critics say an unfettered fossil fuels industry could produce 1.4 million new jobs by 2030. They believe that American voters won't be too impressed with Obama's argument that he is leading a balanced energy-and-jobs approach that includes renewable fuels and electric cars.
The GOP's oil-and-jobs campaign -- in April alone, 81 percent of U.S. political ads attacking Obama were on the subject of energy, according to Kantar Media, a firm that tracks political advertising -- is a risk that could backfire. Americans could decide that they prefer clean energy after all. Or, as half a dozen election analysts and political science professors told me, energy -- even if it seems crucial at this moment in time -- may not be a central election issue by November.
Yet if the election is as close as the polls suggest, the energy ads could prove a pivotal factor. "Advertising is generally not decisive. Advertising matters at the margins. ... But ask Al Gore if the margin matters," said Ken Goldstein, president of the Campaign Media Analysis Group at Kantar Media. "This is looking like an election where the margin may matter."
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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If oil and gas are dirt-cheap, suddenly as abundant as hamburgers, or both, is it time to ring out the Hallelujah Chorus? Even if you are a climate change skeptic, the answer is no, according to two interesting reports this week.
A growing number of analysts and writers are joining a parade celebrating what they believe is an imminent age of U.S. self-sufficiency in the production of oil and gas. This blog has raised questions about the lack of data behind these projections, while analyzing the considerable geopolitical disruption to come should they be correct.
This week's addition to the discussion comes from Michael Levi, who watches energy for the Council on Foreign Relations, and the Energy Security Leadership Council, a group of retired U.S. senior military officers and current and retired corporate executives. Neither challenges the underlying assumption of a new era of fossil fuels, but instead take aim at those shouting kumbaya.
On his blog, Levi asserts that forecasts of a new industrial age, ignited by cheap natural gas, and of the near-elimination of U.S. vulnerability to energy-borne instability are "detached from basic economic and geopolitical reality."
Levi quotes Robin West, the head of PFC Energy, from a Washington Post piece. West said: "This is the energy equivalent of the Berlin Wall coming down. Just as the trauma of the Cold War ended in Berlin, so the trauma of the 1973 oil embargo is ending now. The geopolitical implications of this change are striking: We will no longer rely on the Middle East, or compete with such nations as China or India for resources."
In 1973, the U.S. relied on imports for 15 percent of its oil and gas, Levi notes. Boom enthusiasts say that U.S. imports will fall from the current 45 percent of consumption, to 22 percent of the total. Which makes him ponder: "If 1973 ushered in a new age of energy insecurity, it is tough to see how a fall in imports to a level still higher than the 1973 one would reverse that."
Update: After the Jump, West responds to Levi.
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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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If the largest consumer of oil on the planet abruptly does two things -- doubles its own liquids production and cuts its imports in half -- one might find a big chain-reaction in both macroeconomics and geopolitics. This is precisely what many of the country's top industry analysts suggest is happening in the United States -- that the country will soon account for almost all its own oil requirements, and be in the position of exporting some of it. Count me as a skeptic, but since so many serious analysts are not, it merits looking under the hood.
Yesterday I raised the potential for a U.S. political shakeout if the oil-abundant theorists are correct: If the U.S. truly does become effectively self-sufficient in oil, political support for clean-energy would be seriously undermined.
Today, the Obama Administration imposed super-strict standards on the emissions from coal-fired power plants, incentivizing the development of carbon-capture technology, as well as the use of natural gas. This demonstrates that aggressive public policy can keep the goals of the clean-tech edifice alive; but it cannot be taken as a template, since policy ebbs and flows, and any future Republican administration, for example, is unlikely to embrace the same philosophy.
What about the economic wrinkles of a shift to oil as a trigger of a new U.S. Industrial Revolution, as forecast by Citibank analyst Ed Morse? Low-price energy provides a big advantage to U.S. makers of chemicals and plastics, since the feedstock -- natural gas -- is so cheap. Yet would this edge flow up the line to high-end technologies, the foundation of the overall U.S. economic advantage?
I exchanged emails with Michael Klare, a professor at Hampshire College and the author of The Race for What's Left. Klare thinks that oil abundance could have a fundamental impact on the character of the United States. He said:
I see this as making the United States more like a Third World petro-state -- we will see increased economic benefits in some quarters and among certain specialized labor sectors. But we will become more like a basic commodity producer that must lower its environmental standards in order to boost production, and less like a modern high-tech country like Germany and Japan.
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Nuclear power -- alive and well 1 year later: Technologist Bill Gates well explains why the nuclear power renaissance lives on despite the Fukushima earthquake-tsunami disaster: We simply know of no other mass, non-carbon source of baseload electric power. So it is that, a year after the Japanese nuclear accident (pictured above, precautions in the Fukushima area), there is hardly a blip in the total number of planned new nuclear reactors around the world. Just two of Japan's 54 nuclear plants are up and running, and Germany has closed eight of its 17 plants. Yet the rest of the world is different: China and India appear to have slowed their respective plans for a large-scale buildup of nuclear power in order to accommodate their booming economies, but neither seems likely to actually cancel any of the construction. And, according to the World Nuclear Association, 60 nuclear plants are currently being built (list) around the world, about the same number planned prior to the March 11, 2011, Fukushima accident. Gates argues that, given the unreliable nature of wind and solar power, the sole current substitute for the energy density of fossil fuels is nuclear power. He explains: "Nuclear power provides 1 million times the energy as hydrocarbons." A simple enough calculation.
Finesse and fracking: Hydraulic fracturing has seized the imagination of oilmen and politicians, who believe it will much-reduce the U.S. reliance on outside fossil fuel supplies, and has triggered similar hopes in Europe and China. But this crowd seems to exclude Andrew Gould, chairman of Schlumberger, the world's largest oilfield services company. Gould, who in May becomes chairman of the oil and gas giant BG Group, laments that "fracking," as the drilling practice is usually called, lacks grace, is too dirty and inefficient, and simply doesn't get enough out of the ground. Compared with how the industry typically operates, fracking is mere "brute force," he told a Barclays Capital Commodities conference in New York. It cannot go on long this way.
Go to the Jump for more on fracking, and the rest of the Wrap.
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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.
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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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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Last Friday, we discussed what happens when one adopts a my-way-or-the-highway approach to energy development, in this case opposition to Canadian oil sands. You get what we already have, which is projections of $150-a-barrel oil and $4.50-a-gallon gasoline, the product of a belief that, starting next year or soon thereafter, oil demand will start to exceed supply. This state of affairs vexes Christophe de Margerie, the CEO of France's Total oil company, who met with a small group over breakfast this morning at the Center for Strategic and International Studies. "If you say no to shale oil, no to heavy oil, no to Iran -- no, no, no, no -- what about life?" de Margerie said. Oil companies must be responsible in how they work, but everyone else must grasp that they actually need oil, and will for many decades to come, he said.
De Margerie is refreshing on two fronts -- his wicked sense of humor (Note to oil CEOs: it is possible to be funny and successful) and among the clearest minds on the oil patch. When we last visited with de Margerie, he was on a similar bent -- he was saying that the world is fast approaching the maximum volume of oil it can possibly produce, which he reckons is about 95 million barrels a day; that's just 8 percentage points higher than the 88 million barrels a day the world consumes at the moment. Today, he dove deeply into the wrong-headedness of attempting, at least at the moment, to weed out large energy supplies that one will and will not accept. When it comes to oil, we need all of it.
We still want to drive our cars at will, and own all the plastic gadgets in our homes. We want to fly off to Costa Rica and Bangkok. Not incidentally, we would like our helicopter-borne armies not to worry if they wish on the spur of the moment to capture Osama bin Ladin. That is the stuff that's at risk.
So among other things, the United States would be shrewd to accept the added 500,000 barrels a day to be produced from oil sands in the Canadian province of Alberta, which has been under long scrutiny because of the pollution produced when it is mined and refined. At the same time, Chesapeake Energy CEO Aubrey McClendon might stop congratulating himself for a billion-dollar venture-capital subsidiary aimed at creating demand for surplus shale gas, and instead act aggressively to become super-transparent and police the bad actors who are driving doubts about his industry.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.