Lethal Trajectories
Page 45
OPEC: The Organization of the Petroleum Exporting Countries began operations in January 1961. The organization was designed to safeguard its members’ interests both individually and collectively and to stabilize the oil markets and safeguard members’ revenue streams. Its 2011 membership was: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
This oil powerhouse holds about 70 percent of the world’s proven oil reserves and produces about a third of the world’s oil. Saudi Arabia is the driving force within the cartel, with the largest surplus capacity. As oil production by members of the Organization for Economic Co-operation and Development (see chapter 21 notes) and other non-OPEC countries continues to decline, OPEC is increasingly viewed as the prime source of new oil to meet future energy needs. Oil-production trajectories suggest that OPEC will garner an even larger market share—and with it a commensurate increase in power and leverage—as non-OPEC production declines.
In a sense, the world oil markets are betting the farm on OPEC’s ability and willingness to produce the oil necessary to meet future demand. The problems with this scenario are threefold: 1) OPEC oil reserve numbers are not audited, and there is widespread concern that OPEC may not have the reserves they claim to have. This concern was exacerbated by the mysterious increase in oil reserves claimed by several OPEC producers toward the turn of the last century. 2) The capital required to explore and develop new oil discoveries is immense. Future production is predicated on the willingness of the national oil companies to undertake such ventures even though their revenue streams can be more easily secured through price increases. 3) The Saudis have hinted that they may slow or halt future oil exploration to save their oil wealth. Saudi Arabia, like other OPEC nations, will also continue to consume more of its own oil, leaving less available for export.
Chapter 8:
Religious extremism: This book has deliberately refrained from referring to a specific religious group or sect for two very important reasons: 1) there is an inherent danger in stereotyping and pigeonholing the multiple beliefs of any given religion into a one-size-fits-all box, and 2) to do so may lead to misrepresentations or, worse, disrespect for a specific religion. It is not unusual, for example, to see non-Arab sources refer to Wahhabism, the state religion of Saudi Arabia, as the underlying source for Saudi extremism. However, that is somewhat analogous to blaming John Calvin for all Christian extremism. Accordingly, references to a movement will not be ascribed to a specific sect, but rather in generic terms such as “extremists” or “fundamental extremists.” It is not the intent of this book to disrespect or make false representations about any religion, and anything leading to that interpretation is unintentional.
Saudi coup threats: There is tension in Saudi Arabia between the House of Saud and opponents of the regime who see it as being too closely aligned with Western powers and permissive of Western ways. Saudi leadership performs an intricate balancing act in managing their oil-based economy, which is dependent on alignments with foreign governments and markets, while being sensitive to domestic pressures calling for greater enforcement of fundamentalist beliefs and more widespread sharing of the national wealth. There have been coup attempts and uprisings in the past—even schisms within the royal family; a violent regime change at some future date is not outside the realm of possibility. Recent attempts by the Saudi regime to tone down advocates of extremism might, in fact, have the unintended effect of sowing the seeds for a future backlash.
The chain reaction of so-called Arab Spring uprisings throughout North Africa and the Middle East in 2011 revealed the vulnerability of many, if not all, autocratic regimes. Given the younger demographics of the Arab world, where almost a third of the population is under age thirty, frustrations with a perceived lack of freedom and economic opportunity made geopolitical instability almost a given. Interestingly, as recently as March 18, 2011, King Abdullah of Saudi Arabia made a rare televised appearance to announce economic and social reforms, apparently aware of volatility in his own kingdom.
Dirty bombs: A dirty bomb is a radiologic dispersion device (RDD). It uses conventional explosives to spread radioactive material that can make areas uninhabitable for varying lengths of time. The half-life toxicity of the RDD—and thus, the amount of time an area is uninhabitable—depends on the radioactive substance used in the bomb. Gamma radiation-emitting materials such as plutonium-238, strontium-90, and cesium-137 are particularly toxic. With a highly toxic material that has been chemically or physically altered—weaponized—for maximum toxicity, an RDD’s radioactivity could render an area uninhabitable for decades.
Is a dirty-bomb scenario feasible? Consider this: in his book, Secrets of the Kingdom: The Inside Story of the Saudi–U.S. Connection (Random House, 2005), author Gerald Posner revealed that the Saudi government has a doomsday system in place, dubbed “petroleum scorched earth” or “Petro SE” by the NSA, that would destroy their entire oil infrastructure in the event of an enemy takeover. Developed after the Gulf War, it was meant as a deterrent to any would-be aggressors in that it negated any purposeful reason for an invasion. It was built with a number of fail-safe systems and codes to prevent an inadvertent detonation, and one might assume that the codes and procedures are among the Saudi government’s most closely held secrets. It takes little imagination to suggest the introduction of a radioactive element to enhance the lethality of the dirty-bomb defense system.
EMP weaponry: The electromagnetic pulse produced by a nuclear explosion has been a known concept since almost the inception of atomic warfare. A nuclear bomb exploded high in the Earth’s atmosphere sends out an electromagnetic pulse that destroys or damages all electronic systems in its path in a nanosecond. Its effectiveness depends on the size of the explosion, altitude of detonation, and orientation with respect to geomagnetic fields.
The major effect of the EMP weapon is to destroy all electronic circuitry. The destruction caused by an EMP detonation high over an industrialized nation heavily dependent on electronic systems would be of staggering proportions. Such a strike would affect everyone, disabling everything from military targeting systems to business computer networks to home ventilation systems and critical hospital monitoring equipment. The specter of terrorists detonating a nuclear device atop a scud missile launched from a tramp freighter off the East Coast of the United States is chilling. As delivery systems—such as those possessed by Iran and North Korea—become more sophisticated and nuclear warheads more miniaturized for easier delivery, the threat grows.
Black-market nuclear weaponry: Since the end of the Cold War, thousands of nuclear warheads have been dismantled, leaving tons of weapons-grade uranium in various stages of secure storage. Because it takes only a few kilograms of enriched plutonium to make a crude nuclear device—and far less for a dirty bomb—black-market uranium sales have grown lucrative. There have been several reported incidents of attempted transfers of weapons-grade uranium, and one can only imagine how many transactions went undetected. There is also concern that nuclear bomb-making blueprints are available on the black market. Nations like North Korea have been ingenious in importing materials needed for bomb-making and demonstrate the capacity for a committed buyer with a huge checkbook to secure high-tech weapons. As the proliferation of nuclear weaponry continues, it is not hard to imagine the sale of a turnkey nuclear weapon to a superwealthy buyer. A nonnuclear nation with cruise missile or intermediate-range ballistic missile capability could become an instant nuclear power with acquisition of such weaponry. Such is the scenario suggested in this book.
Gulf Cooperation Council (GCC): Created in May 1981, the GCC represents several Persian Gulf nations, 2011 membership being Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The alliance was designed to foster security, economic growth, and political ties. Collectively, the GCC possesses almost half of the world’s known oil reserves, and Saudi Arabia is the most powerful member of the allian
ce. Control of or access to the GCC would enhance the leverage of an oil-producing nation, a scenario suggested in the book.
Chapter 10:
A number of important oil and economic concepts are introduced in this chapter via a televised financial news interview with Vice-President Clayton McCarty. The following concepts are worth noting:
America’s addiction to oil: America is addicted to oil, as evidenced by the fact that with less than 5 percent of the world’s population and 2 percent of global oil reserves, it consumes over 22 percent of the world’s oil—roughly 19 million barrels per day (MB/D) out of the 87 MB/D of current global oil production. Oil is the mother’s milk of commerce: a major fuel source for 96 percent of America’s transportation system and also the source of oil-based products for manufacturing and heating. Modern America was built on cheap and accessible energy, and its loss would create challenges never before experienced.
Peak oil production: Oil production, from all sources, has flattened out in the 85–87 MB/D range over the past few years, despite price spikes of as high as $147 per barrel in 2008. With rising demand, crude oil shortfalls have been made up with unconventional fuels such as tar-sand oil, liquid fuels from natural gas and coal, and ethanol and other biofuels, but there are practical limits to what can be produced from these sources. Global oil production today is generated from approximately seventy thousand fields. Of these, 507 fields produce 60 percent of all conventional oil; 110 fields produce 50 percent of global supply; and 20 of these fields produce 27 percent of total supply. Sixteen of the twenty fields are now in decline, and the number of new—and smaller—discoveries required to offset diminished production from even one giant field is significant.
Declines, depletions, and discoveries: The problem is this: a large number of giant oil fields are now in decline, and we are not finding the new giants needed to replace them. With global depletion rates from existing fields in the 5 to 7 percent range, the loss of 6 percent of the current supply of 86 MB/D each year, for example, means we have to find more than 5 MB/D of new oil just to make good the oil that has been depleted. Put another way, we have to find a source equivalent to one new Saudi Arabia every two years just to cover depletion rates; the amount of new oil now being discovered is nowhere near meeting this requirement. To increase net new production by 1 MB/D, we will need to find 6 MB/D of new oil: 5 MB/D to make up for depletion and 1 MB/D to provide a net increase. These numbers are not being reached. In fact, we now consume about four barrels of oil for every new barrel of oil we find. In essence, we are digging into our oil savings account future to meet current needs—an unsustainable practice.
Two key metrics: In considering future oil supply there are at least two important metrics to keep in mind:
1.Oil flow rates: The old saying, “It’s not the size of the tank but the size of the tap that counts” says it all: we can’t afford to be mesmerized by sensational reports of giant new oil discoveries because what really counts is how much of that reserve can eventually be extracted daily at a commercially viable price once the field is fully operational. In the Arctic National Wildlife Refuge, for instance, the recoverable reserve is estimated at over ten billion barrels of oil, but the maximum flow rate might top out at about one million barrels per day after several years. Not a paltry sum, but only about 6 percent of America’s daily consumption.
2. Energy received over energy invested: The “easy” oil has already been consumed, and new oil is far costlier to extract, refine, and use. As one measure of cost, the energy required to commercialize new oil—as well as other energy forms—has to be factored against the energy it produces, or net energy. An energy received over energy invested (EROEI) ratio is applied as a measure of net energy. A higher EROEI ratio equates to a favorable net energy production rate, and a lower ratio to a less favorable rate. Using this metric, oil recovered in the United States in 1930 produced EROEI ratios as high as 100:1. That ratio is more like 14:1 today. The ratio will decline further as we go into deeper and costlier waters for new oil finds. (The cost of drilling a new well in 10,000 feet of water can be $100 million or more, and one can only imagine the amount of energy required to get there.) Eventually the costs of finding and extracting new oil will exceed the commercial market value of the oil and drilling will be discontinued, not because we ran out of oil, but because it became unaffordable. This threshold is referred to as peak production.
The prognosis: The prognosis is grim. As global oil production declines, the alternative fuels, transportation models, and infrastructure systems needed to replace lost oil-based energy are insufficient in size and scale to make good on the shortfall. In addition to shortages, the price of oil-based energy, fueled by the immutable laws of supply and demand, will skyrocket. As greater percentages of individual discretionary income and GDP are redeployed toward oil and energy, the economic drag will stifle economic growth, exacerbate unemployment, and create a semipermanent state of economic recession and/or stagflation. This will, in turn, increase national debt loads and make it increasingly difficult for the United States to meet its future entitlement obligations. The temptation to crank up the printing press and monetize debt will be irresistible, the effect on the devalued dollar devastating.
Timetables: Peak oil can only be corroborated by looking in the rear-view mirror. Still, crude oil production has been flat in recent years, with supply gaps made good from unconventional oil, biofuels, coal and gas liquefaction, and other sources. The economic recession of 2008 and 2009 obfuscated the supply-and-demand situation, but as the global economy improves, demand will increase and surpluses will be reduced. Some recent studies suggest that excess capacity could be taken out of the system as early as 2012, with demand outstripping supply thereafter, causing another round of economic deterioration. Whether or not OPEC producers—controlling 70 to 80 percent of known global oil reserves—will step up and finance the capital-intensive efforts needed to develop new oil fields is questionable. And yet, this is basically the hope of the Western world.
For purposes of this book, I have assumed that the oil supply/demand curve will reach equilibrium in 2012 at roughly 87 to 88 MB/D and that nominal demand thereafter will increase by 1 percent per annum while peaked supply decreases by 2 percent.
Chapter 11:
UN Security Council: The United Nations was chartered on October 24, 1945. It has grown from fifty-one original members to the current membership of 192 nations. The key levers of power are housed in the Security Council, a body of fifteen members, ten of whom are rotating members and five permanent. The Security Council has the power to initiate peacekeeping operations, mandate cease-fires, and authorize sanctions. If any one of the five permanent members of the Security Council vetoes a proposed action, it cannot be acted upon. The permanent members are the United States, Great Britain, France, Russia, and China. There have been attempts to give Germany, Brazil, Japan, and India permanent-member status, but reforms in the UN are slow. The larger body of the UN, the General Assembly, has diluted powers. A vote of two-thirds of the membership is required to pass a major initiative, but all members have a right to address the full assembly at specified times.
The New Independence Party: The New Independence Party of California is a fictitious party resembling that of the more moderate Independence Party of America, formed in 2007 and not to be confused with the American Independent Party. It is based on a growing trend in California toward independent voters.
Chapter 12:
Climate-change controversies: Since the establishment of the Kyoto Protocol in 1997, the issue of climate-change—a.k.a. global warming—has become a mainstream public issue. Public interest in, acceptance of, and understanding of the issues has ebbed and flowed. It was a mainstream issue in the 2008 presidential elections and built up more steam (and opposition) in 2009 with passage of the Waxman–Markey American Clean Energy and Security Act (H.R. 2454), which brought cap and trade practices to public attention.
In late 20
09 the pendulum swung in the opposite direction with three noteworthy events: 1) Politicians, particularly in the Senate, sensed a shift in public moods away from big-government solutions and failed to act on an energy and environment bill; 2) the COP-15 Conference in Copenhagen failed to muster the international support needed to toughen greenhouse gas emission standards and enforcement protocols; and 3) the International Panel on Climate-change came under heavy attack for possible research flaws in the IPCC-4 Report, the implication being that if the IPCC findings were in question, all climate science must be questionable.
The IPCC Report became a galvanizing force for those opposed to the notion of climate-change and the proactive steps needed to mitigate it. The IPCC was ill-prepared to respond to the “climate-gate” charges of bogus science leveled against it. The so-called climate hoaxers suggested the data was inconclusive and that even the scientific community was badly divided on the issue. Ergo, they claimed, we should do nothing about it until the data was all in. Public opinion polls showed that their strategy was working, at least to the extent that the public was less sure of the validity of climate-change or its prognosis.