OPEC, the Organization of the Petroleum Exporting Countries, was set up by the producing nations to act as a counter-balance to the influence of the oil corporations. It was followed over the years by the widespread and progressive takeover of oil assets by state-owned companies in those nations. OPEC was founded in 1960 and for some while there were no major shocks affecting energy prices or world supply. However, the leaders of OPEC were outraged by the support given by the US and other Western countries to Israel in the Arab-Israeli war of 1973. Oil exports to the US, Britain and some other states were blocked, while OPEC raised the price of oil by 70 per cent, precipitating economic recession in the industrial countries.
I mention these well-known episodes because they bring home how close the connections at some points between international politics and energy security are (and will continue to be); and also because they serve as a reminder that whether or not the oil will flow does not depend upon the assessment of resources alone, but on how those resources intersect with geopolitics.
French emissions of greenhouse gases are markedly lower today than they might otherwise have been because, following the oil crisis provoked by OPEC’s actions, France took the decision to become more independent of world energy markets and invested heavily in nuclear power. Japan also took note and introduced policies to regulate energy use and promote energy conservation. Today it is among the most energy-efficient of the industrial countries and is in the vanguard of clean energy technology, for instance in the car industry. Its emissions are relatively high, however, because of its dependence upon coal for electricity production. Sweden instituted a range of energy-saving policies and started to reduce its oil dependency, a process that is still continuing. Far more waste is currently recycled in Japan and Sweden than in most other industrial countries. Having no indigenous resources of its own in the 1970s, Denmark took fright and initiated measures to transfer parts of its electricity production to renewable energy sources, particularly wind power. At the same time, Brazil made the decision to invest in biofuels and now has a higher proportion of motor transport running off them than any other country, although the environmental benefits are dubious because of the deforestation involved.
The US was also obliged to react. Its responses included considering plans to invade Saudi Arabia, but also, more realistically, introducing measures to conserve energy, in the shape of the Energy Policy Conservation Act.2 It was a significant intervention, because it showed that the wasteful energy habits of US consumers could be curbed if the impetus was strong enough. The aim of one section of the Act was to double the energy efficiency of new cars within 10 years. The target wasn’t reached, but major improvements were nevertheless achieved. However, as the sense of crisis receded, fuel consumption rose again, soon to become higher per mile travelled than it had been before.
Peak oil
The debate about the limits of the world’s fossil fuel resources is of great consequence for climate change policy. In 1956 the American geologist Marion King Hubbert made the now famous prediction that indigenous oil production in the US would peak in 1970 – a prediction that was widely rejected early on, but which turned out to be valid, even though the actual level of oil production was still going up in 1970. Peak oil calculations depend upon assessments of what in the oil industry is known as the ‘ultimate reserves’ a given country or oilfield has. It does not refer to how much oil exists, but to how much can ever be extracted – usually a much smaller amount.3
The controversies surrounding peak oil are as intense as those concerned with global warming, and the two debates in fact closely resemble one another. There are those who believe that there is plenty of oil and gas to go round. They do not accept that we should be worried about future sources of supply. In their view there are sufficient resources to last for a long while, even given the rising levels of economic growth of the large developing countries and even given the growing world population. David Howell and Carol Nakhle, for example, argue that there is enough of the ‘known, relatively easy-to-extract stuff’ to last for at least another 40 years. More reserves, they continue, are certain to be found. Under the melting ice of the Arctic, ‘billions of tonnes of oil and billions of cubic metres of gas lie waiting’. New oilfields are available for exploration in Alaska, off the coast of Africa and offshore in Brazil. Even in the much-explored Middle East, a possible further cornucopia awaits.4
Such authors are the functional equivalents of the climate change sceptics – they are saying, ‘Crisis, what crisis?’ Mainstream opinion is less sanguine, or at least has become so over the past few years, and is represented by the bulk of industry analysts and the official publications of the major oil countries. It holds that there may be enough oil (and even more gas) to continue to expand levels of production for some while. However, no one knows, almost by definition, how much there is in as yet unexplored fields or what the difficulties of recovering it may be. The International Energy Agency (IEA), set up to monitor oil production after the 1970s oil embargo, predicted in 2007 that there will be no peak in oil production before 2030.5
Others believe that the world is rapidly approaching peak oil and that the adjustments that will have to be made by the industrial and industrializing countries, perhaps in the quite near future, are of epic proportions. As one prominent writer expresses it, we are likely to confront ‘the kind of dramatic, earth-shattering crisis that periodically threatens the very survival of civilization. More specifically, it is an energy crisis brought about by the conflict between the rising global demand for energy and our growing inability to increase energy production.’6 These words come from the investment analyst Stephen Leeb, who in the early 2000s predicted that world oil prices would reach $100 a barrel, a claim regarded by many at the time as ridiculous. Before 2008, Leeb was one of very few individuals talking of the possibility of oil prices reaching $200 a barrel or more. By the middle of that year – prior to the financial crisis – talk of such a possibility became commonplace; at the same time, it was publicly endorsed by the investment bank Goldman Sachs. Oil prices had risen to $147 a barrel by July 2008, but by December, as recession started to bite, they fell back to $40 a barrel. In 2011, oil prices went to over $150 a barrel again, as a result of events in the Middle East.
Leeb is one among a clutch of writers who hold that orthodox claims that world oil supplies will not peak for another 20 or 30 years are fundamentally mistaken.7 The disagreements between those who write about oil production centre upon two main issues – how much recoverable oil there is in existing fields, and what the chances are of large new oil deposits being found. As in the climate change discussion, it will make a great difference to humanity’s future who is right, or more nearly right.
Figure 2.1 World primary energy consumption British Thermal Unit (BTU) is a measure of energy use. It is defined as the amount of heat needed to raise the temperature of one pound of water by one degree from 60 to 61°F.
Source: Energy Information Administration
The amount of new oil discovered each year has been declining for some while. According to David Strahan, discovery was at its highest point as long ago as 1965: ‘These days, for every barrel we discover, we now consume at least three.’8 Most of the world’s biggest oilfields were identified long before that date. Of the 50 highest-producing oil countries, 18 have now passed their peak, even according to conservative estimates. If one includes the smaller producers, more than 60 oil-producing countries have done so too. Their production losses have so far been offset by growth in other areas and by improvements in extraction and processing technology.
Such authors reject the idea that big new oil and gas fields will be opened up under the Arctic or anywhere else, pointing to the extraction difficulties that will be involved. They argue that production in areas of the world outside the OPEC nations and Russia has remained static for years, in spite of successful finds in a range of countries. Russia’s output growth of oil, although currently on the i
ncrease, looks likely to founder. The world will probably continue to have to look to OPEC and to the Middle East, with all its tensions and problems.
Saudi Arabia is one of the largest oil producers in the world, and has been a key state in the US’s Middle Eastern policy for decades. Analysts disagree quite sharply about how large the oil reserves of the kingdom actually are. Many regard the official statements on the part of the Saudi government about the level of the reserves as either optimistic or simply false. In February 2011, Wikileaks, which has been making available many hitherto secret US diplomatic communications, published some such texts concerning Saudi oil. The texts in question urged Washington to take seriously a warning from a senior Saudi oil executive that the country’s oil reserves may be overstated in official estimates by as much as 40 per cent. He said that the Saudis had exaggerated their recoverable reserves in order to sustain foreign investment, and for fear of the consequences for oil prices if the truth were made public. If he was correct, Saudi oil could peak in 2012 or shortly thereafter. Following the leaks, the executive in question denied the views attributed to him, but worries remain about whether the Saudis regularly overstate their known reserves.
The quest for new sources of oil has led to drilling not only in more and more remote places but at greater and greater depths under the sea, from floating platforms. The Deepwater Horizon platform in the Gulf of Mexico, owned by BP, was a technological wonder. Early drilling platforms were built to stand on the sea bed. However, as the drilling moved to deeper and deeper locations, the oil companies introduced ‘semi-submersible’ rigs, which float on the surface.
In April 2010 the rig exploded. Eleven crew members were killed and a huge volume of oil gushed into the Gulf. Government scientists estimated that over the lengthy period before the spill was finally plugged, 62,000 barrels-worth of oil were flowing per day into the ocean early on, and 53,000 barrels per day just before the closure. The authors of a study of the events argue that the episode was ‘not just a tragedy, but also a challenge . . . to move to confront the reality of using ever-increasing quantities of scarce precious petroleum’, and to move towards a future that will not be shackled to ‘our dependence on the fast-disappearing remnants of the time when dinosaurs last roamed the earth, a good hundred million years ago’.9
The Deepwater Horizon rig was drilling in an area where the water was nearly a mile deep, and where the oil reservoir was a further two and a half miles below the sea-flow. To have to resort to such extreme endeavours to produce oil surely reeks of desperation, however much our current dependence on oil is prolonged by such endeavours. The US government blamed BP and its collaborators for inadequate management of Deepwater Horizon, and, looked at narrowly, it was right to do so. Yet the US is a country where no government has been willing or able to curb the country’s thirst for energy.
Supposing the theorists of peak oil are right, can natural gas step into the place of oil to some degree? After all, gas produces lower emissions than either oil or coal, and can be used for at least some of the purposes to which oil is put – for instance, cars can be converted to run on compressed natural gas without too much difficulty. It is often said that world supplies of gas far outstrip those of oil; some say there is enough to last the world for some 70–80 years from now, even given growing demand. David Victor and colleagues have suggested that there will be a worldwide move towards this energy resource.10 By 2050, they argue, gas could supplant oil to become the most important energy source in the world. According to them, there is enough gas available to last for a century at today’s rates of consumption. Yet, as in almost every aspect of energy security, controversy exists here too. There is a large distance indeed between the most optimistic estimate of recoverable gas reserves (20,000 trillion cubic feet) and the lowest (8,000 trillion cubic feet). The availability of natural gas has been transformed by techniques of extracting it from shale. The impact of the technology looks to be considerable. It has attracted interest and widespread investment in the United States in particular, but also in Europe, Asia and Australia. About 6 per cent of US natural gas production now comes from shale. Some experts predict that natural gas will supply 50 per cent of the energy requirements of the US by 2020, in part because of abundant reserves of shale gas. As a transition technology, natural gas could possibly play a significant part in reducing emissions from power stations, by reducing dependence on coal. How far the actual process of extracting the gas generates unacceptably high carbon emissions remains a matter of some controversy, and will need some careful monitoring. Supporters argue its carbon footprint will be the same as orthodox natural gas, because it is more widely available locally, and will not have to be transported across very large distances. Critics say its impact on emissions is considerably greater than normal gas production.
In February 2011 a Chinese state energy company, PetroChina, paid $5.4 billion for a shale gas acquisition in Canada. The deal will allow the Chinese to derive natural gas in large quantities from the reserves, but also to acquire the know-how the country needs to exploit shale gas in China. The rationale for the bid explicitly recognizes the need for China to break away from its reliance upon coal, with its noxious consequences for carbon emissions.
It is normally assumed that, in contrast to oil and gas, one thing we can be sure of is that the world has vast supplies of coal at its disposal. By and large, such is the case; however, some are now saying that world coal supplies might be more limited than has hitherto been supposed.11 There may have been over-reporting of coal reserves. Energy Watch, a German energy consultancy, has looked at the reserves listed by coal-producing countries and found that they have stayed the same even though those countries continued to mine extensively. For example, although China has mined 20 per cent of its coal since 1992, its listed reserves remain unchanged. Countries that have revised their figures have done so in a sharply downward direction, suggesting that improved techniques of assessment have produced more sober estimates than those made previously. Energy Watch has calculated that coal supplies may peak far earlier than is conventionally thought, perhaps as soon as 2025. Majority opinion, to repeat, is against such a conclusion. Indeed, one of the main worries about the world possibly running out of oil is that there could be an upswing in the use of coal.
Sweating the assets
Electricity generation is a major source of energy consumption and of the generation of greenhouse gases. To see what has happened in this area, we have to look first of all at the institutions and practices set up at the time when energy was cheap, because the thinking behind them now looks remarkably shallow. In the period following the Second World War, energy was the locus classicus of the state planning that was everywhere in vogue. Coal-mining was widely nationalized, while miners in numerous countries enjoyed an almost mythic status, partly because of the dangers of their jobs, but also because of the centrality of their work to the economy.
Partly as a hangover from the war years, security of energy supply was a core concern, to which government control was the response. The widespread turn to nuclear power in the 1950s and 1960s was also guided everywhere by the state. Many believed that this source would eventually provide energy in abundance; instead, it proved obstinately expensive and, in the public mind at least, hazardous. Apart from in one or two countries – as mentioned earlier, particularly France – the nuclear option was largely suspended. In many countries, nuclear power stations built decades ago are still in use, although they are now approaching the end of their lives.
The state took a back seat during the subsequent period of market deregulation from the 1980s onwards. From the late 1970s there was a more or less universal turn towards open competition in energy provision. Announcing the UK government’s position in 1982, Secretary of State for Energy Nigel Lawson declared:
I do not see the government’s task as being to try to plan the future shape of energy production and consumption. It is not even primarily to try to balance UK demand
and supply for energy. Our task is rather to set a framework which will ensure that the market operates in the energy sector with a minimum of distortion.12
Most other industrial countries followed suit, to a greater or lesser degree, as did the energy policy of the European Union. Privatization and the liberalization of energy markets became the orthodoxy, even if resisted in some quarters. In effect, there was no energy policy as such, apart from opening up sectors to competition so that markets could do their work in encouraging efficiency and finding appropriate prices for energy goods. Security of supply barely appeared on the radar as prices dropped, while electricity and oil remained plentiful.
However, these measures were to become self-undermining. Since there was excess capacity, and hence no worries about supply, energy companies became focused on paring back operating costs, with pre-existing investment effectively written off. Little new investment was made in the upgrading of plant, save in certain sectors of the oil industry. The situation – especially in countries where privatization had advanced furthest – as Dieter Helm puts it, in a Marxisant way, ‘contained the seeds of its own destruction’.13 In a whole swathe of countries in recent times there have been large-scale interruptions to power supply, exposing vulnerabilities that derive in part from under-investment and in part from market failures.
Since the early 2000s, what Helm calls a new energy paradigm has emerged. It is marked by rises in the price of oil and gas well beyond what seasoned observers had once thought possible. But it also involves a return to the protection of national energy supplies, modernization of plant, investment for the future, a consciousness of the finitude of oil and gas resources, recognition of the key importance of foreign policy to energy security – and an awareness of the need to integrate energy policy with the struggle to limit climate change. Political considerations have come once more to intrude deeply into energy markets because of their concentration in the hands of states which use them as instruments of domestic and foreign policy.
The Politics of Climate Change Page 5
