Sunday, October 25, 2009

Speaking the unspeakable

Legendary oilman T. Boone Pickens has managed to say in public what many policymakers and pundits who championed the invasion of Iraq only think to themselves, namely, that oil companies based in the United States are "entitled" to access to Iraq's oil fields because of the American treasure and blood expended in the Iraq war.

It is a curious logic, but entirely in keeping with the mindset of those who say so-called resource nationalism is preventing the Earth's supposed bounty of oil from reaching global markets. (More on that below.) When you parse Pickens' statement it amounts to something like this: Corporate interests based primarily but not exclusively in the United States should be awarded a share of the work in Iraq's oil fields which is currently being parceled out by the Iraqi government because the U. S. military engaged in a hostile invasion of the country followed by a troubled and often deadly six-year occupation.

If one were thinking strictly in terms of the spoils of war, one might make the case that the soldiers of the victorious army should get some share of Iraqi oil wealth--though I doubt the Iraqis would find such a case compelling. But how does one make the case for U. S. oil companies plundering profit from the handiwork of soldiers employed by the United States and by the other countries involved? Doing so would be a public admission that the Iraq war was fought for access to oil and the opportunity to award the profits from that access to favored corporate interests headquartered in the United States. Just how would the soldiers who fought in the conflict feel about that?

And yet, this would be the logical outcome of the resource nationalism argument made by so many oil supply optimists. To review: Resource nationalism is a term which refers to the control of national resources within a border of a country by its government, whether done directly through ownership or indirectly through policy and taxation. Oil optimists love to say that there is plenty of oil in the ground. It's just that the countries that control the reserves are either hoarding them or are incompetent at getting them out of the ground. And, since national governments essentially control 88 percent of the known reserves, the oil optimists say we must place the blame largely on those governments for oil scarcity.

What then are we to do if those governments don't correct the situation to our satisfaction? Boone Pickens has given one answer that some policymakers believe is necessary, but dare not say publicly: Force those governments to produce more oil in accordance with our needs using intermediaries, i.e., U. S. oil companies, to guide such increases in production.

If peak oil is indeed upon us, you can be sure that thinking like this will increasingly animate the war-making councils of oil importing nations even as they dither in making the difficult but necessary decisions to move toward a post-oil society.

Friday, October 23, 2009

Resource nationalism: The last stand for the oil optimists

My latest column on Scitizen entitled "Resource Nationalism: The Last Stand for the Oil Optimists" has now been posted. Here is the teaser:

The price of oil has more than doubled from its nadir of $30 a barrel earlier this year. To explain the resilience of oil prices in the face of a severe economic slump, the oil optimists have turned to an old standby argument: resource nationalism....Read more

Sunday, October 18, 2009

Sound familiar? Oil and natural gas 10 years apart

Compare these statements concerning oil and natural gas made a decade apart:

Oil in 1998-99:

[I]f you're still operating under the assumption that the earth's petroleum--or at least the cheap stuff--is about to run out, you're not going to thrive in the new oil era. Technology is making it possible to find, produce, and refine oil so efficiently that its supply, at least for practical purposes, is basically unlimited.
            --BusinessWeek, December 14, 1998

With oil prices projected to stay low, companies are dismissing employees and cutting the spending that is crucial to finding the oil they will sell in the future.
            --The New York Times, December 26, 1998

Now, as oil prices languish at the lowest levels in more than a decade, contractors like Diamond, the R & B Falcon Corporation, the Noble Drilling Corporation and the Rowan Companies are taking rigs out of service as rents slide.
            --The New York Times, January 2, 1999

[T]he situation looks so gloomy that Crown Prince Abdullah of Saudi Arabia warned starkly in December, ''The boom days are over, and they will not come back.''
            --The New York Times, January 16, 1999

Baker Hughes Inc., the third largest United States oilfield services company, said the number of rigs drilling for oil and natural gas in the United States had fallen to the lowest level since 1947.
            --The New York Times, January 26, 1999

Yet here is a thought: $10 [a barrel] might actually be too optimistic. We may be heading for $5.
            --The Economist, March 4, 1999

Natural Gas in 2008-09:

U.S. natural gas reserves are far more plentiful than previously estimated, says an industry study being released today - a discovery that heralds a potential remedy to the energy crisis. The report says the U.S. has up to 50% more natural gas reserves than earlier projections because of higher-than-expected yields from 22 shale formations in 20 states.
            --USA Today, July 30, 2008

Given the current gas supply/demand situation, [John Walker, the chief executive officer of EV Energy Partners] sees gas prices falling into the $3-$4 per Mcf range that will create serious economic challenges in the gas and energy industries. He thinks gas storage will be full by September 1st and that could lead to $1 per Mcf gas as gas-on-gas price competition develops.
            --Rigzone, January 21, 2009

The number of rigs drilling for natural gas in the United States fell 15 to 685 this week, the first time below the 700 benchmark since late November 2002, according to a report on Friday by oil services firm Baker Hughes in Houston.
            --Reuters, June 12, 2009

Years of worry about supply shortages because of the maturing of conventional supplies have been replaced by worries there aren't enough customers for the 1,200 trillion cubic feet of natural gas in shale deposits -- enough to last a century -- found in the past three years, plus liquefied natural gas coming from offshore that is "needed like a hole in the head," Mr. [Steve] Letwin [vice-president, gas transportation and international, at Canadian pipeline giant Enbridge Inc.] said in an interview.
            --Financial Post, June 15, 2009

The amount of natural gas available for production in the United States has soared 58% in the past four years, driven by a drilling boom and the discovery of huge new gas fields in Texas, Louisiana and Pennsylvania, a new study says. The report, due to be released Thursday by the nonprofit Potential Gas Committee, concludes the U.S. has more than 2,000 trillion cubic feet of natural gas still in the ground, or nearly a century's worth of production at current rates.
            --Rigzone, June 17, 2009

BP Plc, Europe's second-largest oil company, forecasts that [world] gas resources may rise 60 percent to 100 years of global use at current rates, helped by unconventional sources that are undeveloped or unidentified.
            --Houston Chronicle, October 9, 2009

A new technique that tapped previously inaccessible supplies of natural gas in the United States is spreading to the rest of the world, raising hopes of a huge expansion in global reserves of the cleanest fossil fuel.
            --The New York Times, October 9, 2009

Big players in the LNG market like Repsol YPF, Total and Qatargas, which oversees some of Qatar's huge LNG industry, predicted this week spot gas prices will remain mired near current low levels until well into the next decade.
            --Reuters, October 10, 2009

At turning points most market observers and participants are of the same mind. That doesn't mean the bear market in natural gas can't continue, perhaps for quite a while yet. But the idea that gas will remain cheap and plentiful for decades because of technological breakthroughs sounds too good to be true, and it probably is. Dave Cohen offers a corrective to this vision in his piece, "A Shale Gas Boom?"

Of the many problems not apparent in the above quotations concerning natural gas, two loom large. The shale gas resource is undoubtedly vast. But the key question is at what rate can we produce this shale gas. I've used the following analogy many times before, but it bears repeating: If you inherit a million dollars with the stipulation that you can only withdraw $500 a month, you may be a millionaire, but you will never live like one. We may all be natural gas moguls, but will we ever live like natural gas moguls?

The second big question is how much energy will be required to get the shale gas. The financial costs of getting it are one indication. A key industry insider who heads the country's largest independent shale gas driller said last year that a sustained natural gas price above $6 per mcf is required to grow gas supplies. In truth, a price above $10 per mcf might be needed to get the massive quantities of shale gas touted by the industry. The industry is now drilling the sweet spots in the various shale formations. As they explore further, it will become harder to extract the remaining gas. That means more energy will be required per unit of gas. At some point, shale gas will cease to be worth extracting meaning much of the resource will remain in the ground.

Perhaps the technology will improve. But will it improve quickly enough to offset the increasing difficulty of extracting the shale gas resource as the more easily exploited areas deplete?

There are myriad other issues as well with both conventional and unconventional natural gas:

  • High depletion rates, as much as 65 percent for shale gas wells within the first year, and 30 percent per year on average for all North American gas wells.
  • Pollution of drinking water aquifers from chemicals dissolved in the water used to fracture shale gas formations, a process that is necessary to allow the gas to escape.
  • The availability of capital in a depressed economy and industry to pay for expanded exploration and drilling for both conventional and unconventional gas.
  • The availability of rigs and other equipment needed for a geometrically increasing drilling rate for shale gas necessary both to maintain existing production (in the face of the rapid depletion of wells) and to grow supplies.
  • The possibility that conventional natural gas production in North America may be nearing a cliff that unconventional supplies simply won't be able to compensate for.

We heard the same kind of optimism about supplies (and pessimism about prices) just before oil began its historic ascent from $10 a barrel to $147. Given what we know about consensus predictions for fossil fuel prices and supplies, would it be wise to accept the current consensus on natural gas?

Sunday, October 11, 2009

The purpose of it all

The human search for meaning is a timeless theme and central to our existence. That search has led to complex religious doctrines about the afterlife and how one will be rewarded or punished during it depending on one's record in this life. It has also led to entirely humanistic interpretations of life's meaning, probably most aptly exemplified by Existentialism which very broadly states that humans by acting in the world are in the process of making their own meaning.

But it is John McPhee, that fabulous writer about the geology of the United States, who has given me the insight as to what the "true" purpose of humankind is. McPhee has impressed upon me the rather counterintuitive fact that humans are a geologic force. In his 1993 book, Assembling California, he describes an entire landscape transformed by hydraulic gold mining during the California Gold Rush:

To the south, across the highway, the scene dropped off into a deep mountain valley. The near end of the valley was three hundred feet below the trees above us. The far end of the valley was nearly twice as deep. A mile wide, this was a valley that had not been a valley when wagons first crossed the Sierra. All of it had been water-dug by high pressure hoses. It was a man-made landscape on a Biblical scale. The stand of ponderosas at the northern rim was on the level of the original ground.

More recently, some scientists have come to believe that human activities are bringing about an entirely new geologic age. And, therein seems to lie our purpose, to alter the landscape and the atmosphere to such a degree that we bring about wholly new conditions on Earth.

How do I know this? Simple logic. First, economist Herman Daly has very compellingly explained why growth in developed nations has become "uneconomic." The short version is this: Marginal costs are exceeding marginal benefits. Yes, growth produces more of what we call wealth; but it also degrades the air, water, soil and climate, all of which are necessary for us to produce and enjoy wealth, but more important, essential to our survival. The costs to the environment and the social costs associated with high inequality are greater than the benefits of economic growth. The rather touching concern by the rich for the plight of the poor in a hypothetical no-growth or steady-state economy can easily be explained. In a steady-state economy we would have to be much more concerned about the distribution of wealth, not its mere accumulation. As Daly puts it, "We are addicted to growth because we are addicted to large inequalities in income and wealth. What about the poor? Let them eat growth! Better yet, let them feed on the hope of eating growth in the future!"

Only a small portion of the population, the owners of capital, are now benefitting from growth, i.e, they are getting much richer at the expense of the ecosphere that supports human and all other types of life. Since the defenders of this system never use this as a reason to continue economic growth, we must look elsewhere for the "true" reason.

Here we must posit some far-reaching, perhaps divine plan which I will call geological evolution. Ever since the Earth buried much of its atmospheric carbon in the aptly named Carboniferous Era, there has been no efficient mechanism for reintroducing it back into the atmosphere, that is, until the industrial revolution. But even with the discoveries about the effect of human activities on the climate--primarily through the burning of carbon entombed in the form of oil, natural gas, and coal--we as a species seem determined to continue on our current trajectory. Our overpopulated, high-energy society has begun to deplete the ocean of fish, destroy the fertility of soils, and use up all the rich metal ores. And, yet we continue.

And, providing the justification for continuing down this path are cornucopians such as Julian Simon, Daniel Yergin, Peter Odell and now Roberto Aguilera (an admitted devotee of Julian Simon). They believe we have far more carbon-based fuels yet to burn and that we should definitely burn them. In fact, they largely see this development as not just preferable, but inevitable.

So herein must lie our ultimate purpose as a species during our brief appearance on planet Earth, to wit, to initiate an unstoppable warming of the planet through the reintroduction of naturally sequestered carbon into the atmosphere and thereby usher in a second carboniferous era. Tens or even hundreds of millions of years after that perhaps another species will discover the carbon that will once again have been sequestered and decide to start the cycle all over again. It is a fate that only the god who punished Sisyphus would find satisfying.

Sunday, October 04, 2009

National parks and the idea of conservation in the fossil fuel age

In the past week many people have been watching Ken Burns' latest documentary film, The National Parks: America's Best Idea, on television. The series is a moving tribute to the men and women who saved some of America's most stunning landscapes from the greedy hands of the mining, timber and development interests.

As we have come to expect from Burns, the caliber of the storytelling, the cinematography, the soundtrack and the narration are top flight, and I recommend the series. My focus, however, is not on the film itself so much as on what the story tells us about the relationship between the idea of conservation and the fossil fuel age in which the national parks were established and expanded.

It is clear that Burns' history of the national parks is meant to convey that the creation of the parks was a reaction against the grimy industrialism spreading across the United States in the 19th century. Beautiful places were being encroached upon. Often, it was individuals who valued those places who took up the fight to protect them. And, quite often the cry was: "Not another Niagara Falls." The idea was to protect other special landscapes from commercial exploitation so that visitors could see them as they were when Europeans first set eyes on them.

And, here is the first omission from the story. We are told that such places had to be protected from human exploitation if they were to retain their aesthetic and spiritual appeal. But these landscapes had already been exploited by Native Americans for centuries for food, water, clothing, shelter, and even spiritual purposes. It's just that these native peoples generally had done so in ways that neither destroyed the beauty nor depleted the resources of these places. It is our modern methods of exploitation, our numbers and our consumptive habits that threatened these unique landscapes.

Second, some of those who championed the creation of the national parks were made rich by the very extractive and transportation industries that threatened the parks' beauty. Railroad tycoon Charles Shelton and John D. Rockefeller, Jr., son of oil titan John D. Rockfeller, come to mind. The railroads, of course, made it possible for a great many more people to travel to remote places for work and for leisure. The positive role of the railroad companies in advocating for the national parks is well-covered in the film. But railroads also made it much easier to transport to market the resources extracted from remote places by the very industries that threatened the parks. Coal and then oil extracted from the Earth, usually in ruinous ways, were used to power those railroads and much of industry as well.

As touching and heroic as the concern of Shelton and Rockefeller for unspoiled scenic beauty was, these men were, in fact, exemplars of a system that made national parks a seeming necessity. Before the industrial age, what are now national parks were just places where people lived, foraged and hunted.

Third, if one has seen some the country's national parks--I was recently in Utah at Zion and Bryce Canyon--it is not hard to understand why John Muir and others have spoken of such landscapes as places of spiritual awe and renewal. To paraphrase President Theodore Roosevelt, these are landscapes God has shaped through the ages and that man cannot improve. Thus, we have the dichotomy. The vast majority of the Earth's surface is ripe for improvement. Only certain small tracks of unusual topography, vegetation or wildlife are perfect as is.

Of course, we must remember that these progenitors of the national park idea lived on an Earth that had only a fraction of the population we have today. The notion that we could exhaust the world's resources or change its climate and in the process endanger the very survival of the human species was unthinkable. Coal, iron ore, timber, petroleum, copper, fish and land seemed limitless compared to the needs of the current population or even the needs of any future population.

And, herein lies my fourth point. The age in which the national parks were established was an age in which people could be made to believe that saving a few wild areas would in no way hamper the continued material progress of humankind. There have always been those who wanted to exploit the ready riches which lie in such landscapes. But today in the face of escalating energy prices, it has been all too easy for the American Petroleum Institute to succeed at convincing the American public and the Congress that the United States must open as much area as possible to oil drilling.

As the fossil fuel age winds down, will the public be so amenable to setting aside additional landscapes, keeping them out-of-bounds to extractive industries? Will it even be willing to defend the national parks we already have? I wonder.