By Michael T Klare
Here's the good news about energy: thanks to rising oil prices and deteriorating economic conditions worldwide, the International Energy Agency (IEA) reports that global oil demand will not grow this year as much as once assumed, which may provide some temporary price relief at the gas pump.
In its May Oil Market Report, the IEA reduced its 2011 estimate for global oil consumption by 190,000 barrels per day, pegging it at 89.2 million barrels daily. As a result, retail prices may not reach the stratospheric levels predicted earlier this year, though they will undoubtedly remain higher than at any time since the peak months of 2008, just before the global economic meltdown. Keep in mind that this is the good news.
As for the bad news: the world faces an array of intractable energy problems that, if anything, have only worsened in recent weeks. These problems are multiplying on either side of energy's key geological divide: below ground, once-abundant reserves of easy-to-get "conventional" oil, natural gas, and coal are drying up; above ground, human miscalculation and geopolitics are limiting the production and availability of specific energy supplies. With troubles mounting in both arenas, our energy prospects are only growing dimmer.
Here's one simple fact without which our deepening energy crisis makes no sense: the world economy is structured in such a way that standing still in energy production is not an option. In order to satisfy the staggering needs of older industrial powers like the United States along with the voracious thirst of rising powers like China, global energy must grow substantially every year. According to the projections of the US Department of Energy (DoE), world energy output, based on 2007 levels, must rise 29% to 640 quadrillion British thermal units by 2025 to meet anticipated demand.
Even if usage grows somewhat more slowly than projected, any failure to satisfy the world's requirements produces a perception of scarcity, which also means rising fuel prices. These are precisely the conditions we see today and should expect for the indefinite future.
It is against this backdrop that three crucial developments of 2011 are changing the way we are likely to live on this planet for the foreseeable future.
The first and still most momentous of the year's energy shocks was the series of events precipitated by the Tunisian and Egyptian rebellions and the ensuing "Arab Spring" in the greater Middle East. Neither Tunisia nor Egypt are, in fact, a major oil producer, but the political shockwaves these insurrections unleashed has spread to other countries in the region that are, including Libya, Oman, and Saudi Arabia. At this point, the Saudi and Omani leaderships appear to be keeping a tight lid on protests, but Libyan production, normally averaging approximately 1.7 million barrels per day, has fallen to near zero.
When it comes to the future availability of oil, it is impossible to overstate the importance of this spring's events in the Middle East, which continue to thoroughly rattle the energy markets. According to all projections of global petroleum output, Saudi Arabia and the other Persian Gulf states are slated to supply an ever-increasing share of the world's total oil supply as production in key regions elsewhere declines. Achieving this production increase is essential, but it will not happen unless the rulers of those countries invest colossal sums in the development of new petroleum reserves - especially the heavy, "tough oil" variety that requires far more costly infrastructure than existing "easy oil" deposits.
In a front-page story entitled "Facing Up to the End of 'Easy Oil'", the Wall Street Journal noted that any hope of meeting future world oil requirements rests on a Saudi willingness to sink hundreds of billions of dollars into their remaining heavy-oil deposits. But right now, faced with a ballooning population and the prospects of an Egyptian-style youth revolt, the Saudi leadership seems intent on using its staggering wealth on employment-generating public-works programs and vast arrays of weaponry, not new tough-oil facilities; the same is largely true of the other monarchical oil states of the Persian Gulf.
Whether such efforts will prove effective is unknown. If a youthful Saudi population faced with promises of jobs and money, as well as the fierce repression of dissidence, has seemed less confrontational than their Tunisian, Egyptian, and Syrian counterparts, that doesn't mean that the status quo will remain forever.
"Saudi Arabia is a time bomb," commented Jaafar Al Taie, managing director of Manaar Energy Consulting (which advises foreign oil firms operating in the region). "I don't think that what the king is doing now is sufficient to prevent an uprising," he added, even though the Saudi royals had just announced a $36 billion plan to raise the minimum wage, increase unemployment benefits, and build affordable housing.
At present, the world can accommodate a prolonged loss of Libyan oil. Saudi Arabia and a few other producers possess sufficient excess capacity to make up the difference. Should Saudi Arabia ever explode, however, all bets are off. "If something happens in Saudi Arabia, [oil] will go to $200 to $300 [per barrel]," said Sheikh Zaki Yamani, the kingdom's former oil minister, on April 5. "I don't expect this for the time being, but who would have expected Tunisia?"
Nuclear power on the downward slope
The terms of the energy markets, the second major development of 2011 occurred on March 11 when an unexpectedly powerful earthquake and tsunami struck Japan. As a start, nature's two-fisted attack damaged or destroyed a significant proportion of northern Japan's energy infrastructure, including refineries, port facilities, pipelines, power plants, and transmission lines. In addition, of course, it devastated four nuclear plants at Fukushima, resulting, according to the US Department of Energy, in the permanent loss of 6,800 megawatts of electric generating capacity.
This, in turn, has forced Japan to increase its imports of oil, coal, and natural gas, adding to the pressure on global supplies. With Fukushima and other nuclear plants off line, industry analysts calculate that Japanese oil imports could rise by as much as 238,000 barrels per day, and imports of natural gas by 1.2 billion cubic feet per day (mostly in the form of liquefied natural gas, or LNG).
This is one major short-term effect of the tsunami. What about the longer-term effects? The Japanese government now claims it is scrapping plans to build as many as 14 new nuclear reactors over the next two decades. On May 10, Prime Minister Naoto Kan announced that the government would have to "start from scratch" in devising a new energy policy for the country. Though he speaks of replacing the cancelled reactors with renewable energy systems like wind and solar, the sad reality is that a significant part of any future energy expansion will inevitably come from more imported oil, coal, and LNG.
The disaster at Fukushima - and ensuing revelations of design flaws and maintenance failures at the plant - has had a domino effect, causing energy officials in other countries to cancel plans to build new nuclear plants or extend the life of existing ones. The first to do so was Germany: on March 14, Chancellor Angela Merkel closed two older plants and suspended plans to extend the life of 15 others. On May 30, her government made the suspension permanent. In the wake of mass antinuclear rallies and an election setback, she promised to shut all existing nuclear plants by 2022, which, experts believe, will result in an increase in fossil-fuel use.
China also acted swiftly, announcing on March 16 that it would stop awarding permits for the construction of new reactors pending a review of safety procedures, though it did not rule out such investments altogether. Other countries, including India and the United States, similarly undertook reviews of reactor safety procedures, putting ambitious nuclear plans at risk. Then, on May 25, the Swiss government announced that it would abandon plans to build three new nuclear power plants, phase out nuclear power, and close the last of its plants by 2034, joining the list of countries that appear to have abandoned nuclear power for good.
How drought strangles energy
The third major energy development of 2011, less obviously energy-connected than the other two, has been a series of persistent, often record, droughts gripping many areas of the planet. Typically, the most immediate and dramatic effect of prolonged drought is a reduction in grain production, leading to ever-higher food prices and ever more social turmoil.
Intense drought over the past year in Australia, China, Russia, and parts of the Middle East, South America, the United States, and most recently northern Europe has contributed to the current record-breaking price of food - and this, in turn, has been a key factor in the political unrest now sweeping North Africa, East Africa, and the Middle East. But drought has an energy effect as well. It can reduce the flow of major river systems, leading to a decline in the output of hydroelectric power plants, as is now happening in several drought-stricken regions.
By far the greatest threat to electricity generation exists in China, which is suffering from one of its worst droughts ever. Rainfall levels from January to April in the drainage basin of the Yangtze, China's longest and most economically important river, have been 40% lower than the average of the past 50 years, according to China Daily. This has resulted in a significant decline in hydropower and severe electricity shortages throughout much of central China.
The Chinese are burning more coal to generate electricity, but domestic mines no longer satisfy the country's needs and so China has become a major coal importer. Rising demand combined with inadequate supply has led to a spike in coal prices, and with no comparable spurt in electricity rates (set by the government), many Chinese utilities are rationing power rather than buy more expensive coal and operate at a loss. In response, industries are upping their reliance on diesel-powered backup generators, which in turn increases China's demand for imported oil, putting yet more pressure on global fuel prices.
Wrecking the planet
So now we enter June with continuing unrest in the Middle East, a grim outlook for nuclear power, and a severe electricity shortage in China (and possibly elsewhere). What else do we see on the global energy horizon?
Despite the IEA's forecast of diminished future oil consumption, global energy demand continues to outpace increases in supply. From all indications, this imbalance will persist.
Take oil. A growing number of energy analysts now agree that the era of "easy oil" has ended and that the world must increasingly rely on hard-to-get "tough oil". It is widely assumed, moreover, that the planet harbors a lot of this stuff - deep underground, far offshore, in problematic geological formations like Canada's tar sands, and in the melting Arctic. However, extracting and processing tough oil will prove ever more costly and involve great human, and even greater environmental, risk. Think: BP's Deepwater Horizon disaster of April 2010 in the Gulf of Mexico.
Such is the world's thirst for oil that a growing amount of this stuff will nonetheless be extracted, even if not, in all likelihood, at a pace and on a scale necessary to replace the disappearance of yesterday's and today's easy oil. Along with continued instability in the Middle East, this tough-oil landscape seems to underlie expectations that the price of oil will only rise in the coming years.
In a poll of global energy company executives conducted this April by the KPMG Global Energy Institute, 64% of those surveyed predicted that crude oil prices will cross the $120 per barrel barrier before the end of 2011. Approximately one-third of them predicted that the price would go even higher, with 17% believing it would reach $131-$140 per barrel; 9%, $141-$150 per barrel; and 6%, above the $150 mark.
The price of coal, too, has soared in recent months, thanks to mounting worldwide demand as supplies of energy from nuclear power and hydroelectricity have contracted. Many countries have launched significant efforts to spur the development of renewable energy, but these are not advancing fast enough or on a large enough scale to replace older technologies quickly. The only bright spot, experts say, is the growing extraction of natural gas from shale rock in the United States through the use of hydraulic fracturing ("hydro-fracking").
Proponents of shale gas claim it can provide a large share of America's energy needs in the years ahead, while actually reducing harm to the environment when compared to coal and oil (as gas emits less carbon dioxide per unit of energy released); however, an expanding chorus of opponents are warning of the threat to municipal water supplies posed by the use of toxic chemicals in the fracking process. These warnings have proven convincing enough to lead lawmakers in a growing number of states to begin placing restrictions on the practice, throwing into doubt the future contribution of shale gas to the nation's energy supply. Also, on May 12, the French National Assembly (the powerful lower house of parliament) voted 287 to 146 to ban hydro-fracking in France, becoming the first nation to do so.
The environmental problems of shale gas are hardly unique. The fact is that all of the strategies now being considered to extend the life-spans of oil, coal, and natural gas involve severe economic and environmental risks and costs - as, of course, does the very use of fossil fuels of any sort at a moment when the first IEA numbers for 2010 indicate that it was an unexpectedly record-breaking year for humanity when it came to dumping greenhouse gases into the atmosphere.
With the easily accessible mammoth oil fields of Texas, Venezuela, and the Middle East either used up or soon to be significantly depleted, the future of oil rests on third-rate stuff like tar sands, shale oil, and extra-heavy crude that require a lot of energy to extract, processes that emit added greenhouse gases, and as with those tar sands, tend to play havoc with the environment.
Shale gas is typical. Though plentiful, it can only be pried loose from underground shale formations through the use of explosives and highly pressurized water mixed with toxic chemicals. In addition, to obtain the necessary quantities of shale oil, many tens of thousands of wells will have to be sunk across the American landscape, any of one of which could prove to be an environmental disaster.
Likewise, the future of coal will rest on increasingly invasive and hazardous techniques, such as the explosive removal of mountaintops and the dispersal of excess rock and toxic wastes in the valleys below. Any increase in the use of coal will also enhance climate change, since coal emits more carbon dioxide than do oil and natural gas.
Here's the bottom line: Any expectations that ever-increasing supplies of energy will meet demand in the coming years are destined to be disappointed. Instead, recurring shortages, rising prices, and mounting discontent are likely to be the thematic drumbeat of the globe's energy future.
If we don't abandon a belief that unrestricted growth is our inalienable birthright and embrace the genuine promise of renewable energy (with the necessary effort and investment that would make such a commitment meaningful), the future is likely to prove grim indeed. Then, the history of energy, as taught in some late 21st-century university, will be labeled: How to Wreck the Planet 101.
Michael T Klare is a professor of peace and world security studies at Hampshire College, a TomDispatch regular, and the author, most recently, of Rising Powers, Shrinking Planet. A documentary movie version of his previous book, Blood and Oil,
Russian Energy Minister Sergei Shmatko and Gazprom's top hierarchy, along with their West European business allies, advertised the South Stream project at a promotional event on May 25 in Brussels. The European Commission had agreed to be represented at this event, at Russian Prime Minister Vladimir Putin's insistence, during the EU-Russia energy summit in February.
The Russian side used the intervening months to prepare elaborate presentations of the project and deploy an unprecedented mass of lobbying power. It hoped through this all-out effort to demonstrate South Stream's viability, neutralize legal objections to it within the European Union, and obtain EU financial backing for the South Stream project. Meanwhile, Putin and Shmatko had cast fresh doubts on this project by proposing a switch in the transportation mode, from pipeline to LNG, across the Black Sea.
South Stream CEO, Marcel Kramer (recently recruited by Gazprom from Nederlands Gasunie), delivered the main presentation in Brussels, seconded by Gazprom chief Alexei Miller and Shmatko. They declared that a new shareholders' agreement for the pipeline on the seabed of the Black Sea would be completed during 2011; an overall technical and economic feasibility study, by September 2011; a final investment decision, by the end of 2012; aiming for the first gas volumes to flow in 2015, and full-capacity operation by 2018.
However, none of the presenters was able to identify sources for the putative 63 billion cubic meters (bcm) of gas per year, that Russia claims to be able to supply through this South Stream. Instead, Miller simply stated that Russia "has all the [gas] resources it needs" for this and other export projects.
The presenters were similarly vague about financing South Stream. They urged the EU to confer priority status to this project within the Trans-European Networks framework, which would facilitate access to European credits for South Stream. Gazprom had estimated the project's overall construction cost at more than $20 billion. Furthermore, the Russian side seeks far-reaching exemptions from EU energy market legislation. Such exemptions are necessary if Gazprom were to build, co-own and operate South Stream's pipeline branches on the territories of EU countries.
Except for gas, funding, and compatibility with EU law, this project holds all the other advantages, according to the presenters. Gazprom anticipates strong market demand in Europe and counts on the "experience and know-how" of its West-European partners in the South Stream consortium.
EU Energy Commissioner Guenther Oettinger sounded politely skeptical in his remarks. He had come to the event with an open mind for some answers: "Where would the gas actually come from? Where will it arrive? How will it arrive, by [LNG] ship or by pipeline? Will it divert gas from Ukraine?" From the commission's standpoint, "South Stream so far seemed more of a concept than a concrete project". Reflecting its virtuality, Miller countered that "it is more than a concept and more even than a project, it is an incipient construction".
Most questions from the commission and the press at the event were left unanswered or received vague answers from the Russian side. Oettinger reaffirmed that the EU "clearly has a preference" for its Southern Corridor, wants direct access with Caspian gas producers, and seeks a balanced trilateral solution for Ukraine's gas transit system. Moreover, any South Stream pipelines (if built) in EU countries, would have to comply with the EU's energy market legislation, including: competitive access for third-parties at non-discriminatory conditions, tariffs subject to regulation by the national regulators, and reverse flows.
As Miller reported to President Dmitry Medvedev in Moscow after the Brussels event, Gazprom is in the process of recasting the South Stream consortium. Moscow offers to coopt Electricite de France and Wintershall as minority shareholders, and suggests that E.ON Ruhrgas would also be welcome. Any new entrant's shares would be subtracted from that of Italian ENI, the original partner to Gazprom in South Stream from the project's inception.
That reorganization would apply to the pipeline's section on the seabed of the Black Sea. The sections planned overland would be owned and operated by Gazprom with each host country on a bilateral basis. The Russian government and Gazprom propose to involve as many as seven EU member countries into this system. This poses a head-on challenge to the EU's energy market legislation. This challenge, like South Stream itself, is a virtual one.
Russia is in no position to implement the project, but is interested in creating legal confusion and undermining EU legislation in putative South Stream participant countries. It capitalizes on vested interests of its West European business partners for political support toward that end....