At a recent Crossroads Lecture, energy policy expert Daniel Kammen spoke about Energizing the Low-Carbon Future. His presentation is timely – climate change has been on the public mind as hurricane superstorm Sandy devastated New York, New Jersey, and beyond. Though we would all agree that energy is an essential part of our daily life, Americans spend more money on potato chips than on energy research and development. Dan has a deep nuanced understanding of where we are at, and where we need to go, to build a clean, sustainable energy future.
In the presentation below, Dr. Kammen explores innovations in, and barriers to, building renewable energy systems worldwide – from villages to large regional economies. He discusses tools already available, and others needed, to speed the transition to a sustainable planet. Daniel Kammen is Professor in the Energy and Resources Group (ERG), Professor of Public Policy in the Goldman School of Public Policy at the University of California, Berkeley. He is also the founding Director of the Renewable and Appropriate Energy Laboratory (RAEL). Kammen advises the World Bank, and the Presidents Committee on Science and Technology (PCAST), and is a member of the Intergovernmental Panel on Climate Change (Working Group III and the Special Report on Technology Transfer).
Dan spoke for about an hour, followed by a 35 minute question and answer session. The Q&A session has some great questions and discussion.
Dan talked about cleantech jobs, the economic benefits of transitioning to renewable energy, climate change, coal, natural gas, arctic sea ice loss, peak oil, the real cost of coal and other high-carbon sources of energy, solar energy, and energy storage. One of my favorite quotes:
When you are spending your funds buying fuels as a fraction of the cost of the technology, it’s a very different equation than when you are investing in people, training, new companies, and intellectual capital. [And so, for example] if you buy a gas turbine, 70 percent of the money that will go in to that, over its lifetime, is not going to be for human resources and hardware, it’s to buy fuel. If you buy renewable energy and energy efficiency, while we have a problem of needing to find ways to amortize up-front costs, you are investing in people, companies, and innovation.
Jobs created, per dollar invested, are consistently higher for cleantech jobs versus old fossil fuel based energy sources. Economist Robert Solow, in his Nobel prize winning work on the drivers of economic growth, demonstrated that about 75 to 80 percent of the growth in US output per worker was attributable to technical progress and innovation. Transitioning to renewable forms of energy will provide strong stimulus to our economy, while reducing public health and environmental costs associated with dirty coal and oil pollution.
After Dan Kammen finished overviewing climate change and energy issues, he highlighted several case studies that featured renewable energy and low-carbon energy production implementations for small (personal), medium (community) and large (national) installations. Watch the video above for more.
Jeffrey Sachs has a outstanding new book out called The Price of Civilization. The title of the book refers to remarks made by US Supreme Court justice Oliver Wendell Holmes, who spoke of the need for citizens of a country, who enjoyed the benefits of living in that country, to pay the price to support that civilization.
Sachs provides a thoughtful, cogent analysis of challenges facing America, and how to address those challenges. The book has a clean straightforward jargon-free narrative that is balanced and has elements that will appeal to conservatives, independents and progressives alike – though each group will find things to disagree with, there is much that will be embraced.
Sachs looks at the nature of America, through the lens of democracy, fairness, civic virtue, compassion, and happiness, and asks the question “What is our role in the 21st century?”
Sachs is the Director of The Earth Institute, Quetelet Professor of Sustainable Development, and Professor of Health Policy and Management at Columbia University.
Here’s Sachs being interviewed by Charlie Rose, about The Price of Civilization.
Here’s Sachs in the middle of the Occupy Wall Street demonstrations, taking questions from reporters. Sachs is articulate, plain speaking and clearly frustrated with the faltering state of the nation and the cozy monied relationship between government and big business.
On a related note, Charles M. Blow had an excellent graphic from the Bertelsmann Stiftung foundation report “Social Justice in the OECD — How Do the Member States Compare?” It helps give some context to issues driving the Occupy Wall Street demonstrations and challenges facing America.
Oil production in the US peaked in 1970. The easy “sweeter” stuff has been extracted. What remains is deeper in the ground or farther off-shore, requires much more energy to extract, and is more toxic to produce. It takes energy to make energy. Energy Return on Investment (EROI) also known as ERoEI (Energy Returned on Energy Invested), is a common way of expressing the efficiency of the energy production process. The EROI for oil and gas, as well as other fossil fuels, has been falling for decades (see chart below). If it was a financial stock, you would have sold it years ago.
It is important to track EROI. Producing a barrel of oil consumes more and more energy, thus exponentially accelerating the consumption of the oil. It is like the mythic Ouroboros – a snake eating its own tail. A high EROI is better than low EROI. As we approach an EROI of 1:1 (e.g. consuming 1 barrel of oil to produce 1 barrel of oil), it’s game over – why bother. Prudent nations would want to have a comprehensive plan for transitioning to alternative fuels and renewable energy, well before we hit peak oil. Oh well… More on that in a minute (see The Hirsch Report, below).
Oil and gas are the main sources of energy in the United States. Part of their appeal is the high Energy Return on Energy Investment (EROI) when procuring them. We assessed data from the United States Bureau of the Census of Mineral Industries, the Energy Information Administration (EIA), the Oil and Gas Journal for the years 1919–2007 and from oil analyst Jean Laherrere to derive EROI for both finding and producing oil and gas. We found two general patterns in the relation of energy gains compared to energy costs: a gradual secular decrease in EROI and an inverse relation to drilling effort. EROI for finding oil and gas decreased exponentially from 1200:1 in 1919 to 5:1 in 2007. The EROI for production of the oil and gas industry was about 20:1 from 1919 to 1972, declined to about 8:1 in 1982 when peak drilling occurred, recovered to about 17:1 from 1986–2002 and declined sharply to about 11:1 in the mid to late 2000s. The slowly declining secular trend has been partly masked by changing effort: the lower the intensity of drilling, the higher the EROI compared to the secular trend. Fuel consumption within the oil and gas industry grew continuously from 1919 through the early 1980s, declined in the mid-1990s, and has increased recently, not surprisingly linked to the increased cost of finding and extracting oil.
As we deplete the earths global oil reserves, we need to dig deeper and deeper – typically drilling over 100 million feet of well per year. It takes enormous amounts of energy and resources to do that, not to mention the energy consumed just to figure out where to drill. The next two charts show the EROI for oil and gas discovery and production.
For the Discovery chart above, note that in the early days of oil exploration, the stuff was practically bubbling out of the ground, so it was much easier to figure out where to drill – hence the EROI over 1,200 in 1920. As the US industrial age found its legs, oil consumption accelerated. Demand for more and more oil quickly consumed the easy stuff, and the EROI fell rapidly. As we hit peak oil production in 1970, the EROI fell below 10:1. I inset a blowup of the chart, from 1950 to 2010, so that we can see how EROI has since remained firmly in the single digits.
The EROI for Production is trending lower too. Variations in any given year are largely dependent on how much drilling it takes to produce the oil. Typically about 2 barrels of oil equivalent are consumed per foot of well drilled. In years where there was a lot of drilling, the EROI would be lower.
A more intuitive way to look at this trend is as dollars per barrel of oil. The chart below is from the Energy Information Administration (EIA) Annual Energy Review for 2011. It shows the cost to add each additional barrel of oil to US reserves.
As I mentioned above, the easy oil has been extracted. What remains is increasingly difficult to get to and refine (ultra-deep, off-shore, tar sands, shale-rock fracking, etc). We should expect these prices to continue their trend higher.
The Hirsch Report
In 2005, the US Department of Energy published Peaking of World Oil Production: Impacts, Mitigation, and Risk Management, which came to be known as the Hirsch Report, named for the reports lead author, Robert Hirsch. It examined the time frame for the occurrence of peak oil, the necessary mitigating actions, and the likely impacts based on the timeliness of those actions. From the report:
The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.
The report estimated that oil production would peak in about 2015. It laid out three possible scenarios:
A scenario analysis was performed, based on crash program implementation worldwide – the fastest humanly possible. Three starting dates were considered: 1. When peaking occurs; 2. Ten years before peaking occurs; and 3. Twenty years before peaking.
The timing of oil peaking was left open because of the considerable differences of opinion among experts. Consideration of a number of implementation scenarios provided some fundamental insights, as follows:
Waiting until world oil production peaks before taking crash program action leaves the world with a significant liquid fuel deficit for more than two decades.
Initiating a mitigation crash program 10 years before world oil peaking helps considerably but still leaves a liquid fuels shortfall roughly a decade after the time that oil would have peaked.
Initiating a mitigation crash program 20 years before peaking offers the possibility of avoiding a world liquid fuels shortfall for the forecast period.
The reason why such long lead times are required is that the worldwide scale of oil consumption is enormous – a fact often lost in a world where oil abundance has been taken for granted for so long. If mitigation is too little, too late, world supply/demand balance will have to be achieved through massive demand destruction (shortages), which would translate to extreme economic hardship. On the other hand, with timely mitigation, economic damage can be minimized.
We are on a short fuse. As we ride along the top of peak oil production, spikes in demand, or disruptions in supply, will cause rapid fluctuations in the price of oil. With no ability to provide alternatives, the economy will stutter, usually in the form of a recession, which has the side effect of reducing demand. Until we transition to alternative forms of energy, we will repeat the cycle of growth, followed by hitting the peak oil wall, followed by recession.
Small is Beautiful
And as the legendary economist E.F. Schumacher points out in his seminal book Small is Beautiful, to understand the true cost of an product or initiative, we must tally both the direct costs as well as the indirect costs. When we talk about oil and gas, what is the cost of CO2 spewing into our atmosphere? What is the cost of toxic chemicals leaking into our water systems? What is the cost to public health? What is the cost of each oil war? What is the cost of funding petro-dictatorships? What is the cost to the common wealth?
What is the cost?
While the EROI of fossil fuels such as oil, gas, and coal plummet, the EROI for renewables such as wind and solar are trending strongly up, with EROIs five to twenty times higher than their fossil fuel counterparts.
Can the nation that pioneered the computer, telecommunications, the internet, medical technology, oil exploration, landed on the moon, etc. muster the will to do it again with alternative energy? Carpe Diem!
Democrats of the Congressional Committee on Energy and Commerce just released a new report detailing chemicals used in the toxic gas exploration process known as Hydraulic Fracturing (fracking or fracing). Fracking is a technique used to extract natural gas from oil shale beneath the earths surface. Communities are increasingly concerned about fracking polluting public water systems and the environment, when the chemicals leak into aquifers, rivers, streams and the atmosphere.
While the oil/gas industry has denied any problem, there is mounting evidence that public water systems and private wells are being polluted in areas around the drilling sites. In states such as Pennsylvania, politicians have welcomed Big Oil in with open arms, and thousands of gas extraction wells are expected to be drilled this year. Presently, the natural gas industry does not have to disclose the chemicals used, but scientists have identified known carcinogens and volatile organic compounds (VOCs) such as benzene, toluene, ethylbenzene and xylene. The chemicals can most often leak in to the water system in several ways:
Derrick – The natural gas process involves drilling 5,000 feet or more down and a comparable distance horizontally. The majority of the drilling liquid remains in the ground and is not biodegradable.
Well Casing – If the well casing that penetrates through the aquifer is not well sealed, chemicals can leak in to the aquifer.
Fractured Shale – To release the gas from underground, millions of gallons of water, sand and proprietary chemicals are injected, under high pressure, into the well. The pressure fractures the shale and props open fissures that enable natural gas to flow more freely out of the well. These fissures may allow the chemicals to enter the water system. In addition, recent reports suggest that radiation in the ground is contaminating the fracking fluid. This radiation has been showing up in drinking water. For more on that see the NY Times investigative article by Ian Urbina Regulation Lax as Gas Wells’ Tainted Water Hits Rivers.
Surface Contamination – The gas comes up wet in produced water and has to be separated from the wastewater on the surface. Only 30-50% of the water is typically recovered from a well. This wastewater can be highly toxic. Holding ponds, and handling mishaps can release this toxic brew into the environment. For some examples, see the video below about residents in Pennsylvania and the impact of fracking on their water systems. Surface evaporation of VOCs coming into contact with diesel exhaust from trucks and generators at the well site, can produce ground level ozone. Ozone plumes can travel up to 250 miles.
Horizontal fracking uses up to 300 tons of a mixture of 750 chemicals, many of them proprietary, and millions of gallons of water per frack. This water then becomes contaminated and must be cleaned and disposed of. To date, the oil/gas industry has been secretive about what chemicals are used, and has lobbied Congress for a variety of protections. Much of the contaminated water is taken to water treatment plants that are not designed to process the chemicals and radiation found in fracking fluids.
In 2005, the Bush/ Cheney Energy Bill exempted natural gas drilling from the Safe Drinking Water Act. It exempts companies from disclosing the chemicals used during hydraulic fracturing. Essentially, the provision took the Environmental Protection Agency (EPA) off the job. It is now commonly referred to as the Halliburton Loophole.
The FRAC Act (Fracturing Responsibility and Awareness of Chemical Act) is a House bill intended to repeal the Halliburton Loophole and to require the natural gas industry to disclose the chemicals they use.
The Safe Drinking Water Act was passed by Congress, in 1974, to ensure clean drinking water free from both natural and man-made contaminates. Remember the days when rivers were so polluted with toxic industrial waste that they would ignite into flame?
Here’s the introduction from the Democrats report from the Energy and Commerce Committee – Chemicals Used In Hydraulic Fracturing (N.B. click on the link at left to see the actual report and list of chemicals):
Today Energy and Commerce Committee Ranking Member Henry A. Waxman, Natural Resources Committee Ranking Member Edward J. Markey, and Oversight and Investigations Subcommittee Ranking Member Diana DeGette released a new report that summarizes the types, volumes, and chemical contents of the hydraulic fracturing products used by the 14 leading oil and gas service companies. The report contains the first comprehensive national inventory of chemicals used by hydraulic fracturing companies during the drilling process.
“Hydraulic fracturing has helped to expand natural gas production in the United States, but we must ensure that these new resources don’t come at the expense of public health,” said Rep. Waxman. “This report shows that these companies are injecting millions of gallons of products that contain potentially hazardous chemicals, including known carcinogens. I urge EPA and DOE to make certain that we have strong protections in place to prevent these chemicals from entering drinking water supplies.”
“With our river ways and drinking water at stake, it’s an absolute necessity that the American public knows what is in these fracking chemicals,” said Rep. Markey. “This report is the most comprehensive look yet at the composition of the chemicals used in the fracking process, and should help the industry, the government, and the American public push for a safer way to extract natural gas.”
During the last Congress, the Committee launched an investigation into the practice of hydraulic fracturing in the United States, asking the leading oil and gas service companies to disclose information on the products used in this process between 2005 and 2009.
The Democratic Committee staff analyzed the data provided by the companies about their practices, finding that:
The 14 leading oil and gas service companies used more than 780 million gallons of hydraulic fracturing products, not including water added at the well site. Overall, the companies used more than 2,500 hydraulic fracturing products containing 750 different chemicals and other components.
The components used in the hydraulic fracturing products ranged from generally harmless and common substances, such as salt and citric acid, to extremely toxic substances, such as benzene and lead. Some companies even used instant coffee and walnut hulls in their fracturing fluids.
Between 2005 and 2009, the oil and gas service companies used hydraulic fracturing products containing 29 chemicals that are known or possible human carcinogens, regulated under the Safe Drinking Water Act (SDWA) for their risks to human health, or listed as hazardous air pollutants under the Clean Air Act.
The BTEX compounds – benzene, toluene, xylene, and ethylbenzene – are SDWA contaminants and hazardous air pollutants. Benzene also is a known human carcinogen. The hydraulic fracturing companies injected 11.4 million gallons of products containing at least one BTEX chemical over the five-year period.
Methanol, which was used in 342 hydraulic fracturing products, was the most widely used chemical between 2005 and 2009. The substance is a hazardous air pollutant and is on the candidate list for potential regulation under SDWA. Isopropyl alcohol, 2-butoxyethanol, and ethylene glycol were the other most widely used chemicals.
Many of the hydraulic fracturing fluids contain chemical components that are listed as “proprietary” or “trade secret.” The companies used 94 million gallons of 279 products that contained at least one chemical or component that the manufacturers deemed proprietary or a trade secret. In many instances, the oil and gas service companies were unable to identify these “proprietary” chemicals, suggesting that the companies are injecting fluids containing chemicals that they themselves cannot identify.
How Fracking Can Effect Your Community And What You Can Do About It
Once a communities water system is made toxic, property values plummet. Homeowners end up with homes that can’t be sold at anywhere near their original value. They are forced to live in their un-sellable homes and continue to be exposed to the toxic environment. Fracking can compromise public health and environmental quality. The map below from the Gasland project shows where oil shale gas drilling areas are most intensive, in red.
Here’s a more detailed map from the Energy Information Administration showing “Shale Plays.”
The term “play” is used in the oil and gas industry to refer to a geographic area which has been targeted for exploration due to: favorable geoseismic survey results; well logs; or production results from a new or “wildcat well” in the area. An area comes into play when it is generally recognized that there is a valuable quantity of oil or gas to be found. Oil and gas companies will send out professional “land men” who research property records at the local courthouses and after having located landowners who own the mineral rights in the play area, will offer them an oil and gas lease deal. Competition for acreage usually increases based on how hot the play is in terms of production from discovery wells in the area. The more oil and gas there is to be had, the higher the lease payments per acre are.
And money talks. Homeowners and towns can be attracted to the offer of money for exploitation of the shale. The heavy costs paid are only realized after the deal is signed – costs to the environment, increased industrial traffic through the community, attraction of outsider oil/gas workforce that can stress local community wellbeing, and of course – environmental degradation, and risk to public water systems.
Bryan Walsh, one of my favorite environmental reporters, just published this evenhanded video that looks at some specific examples of toxic fracking related events in Pennsylvania, the heart of east coast gas extraction. While business leaders in the community enjoy the increased hotel and travel related economics, the devastating impact on homeowners and communities can be tragic.
As the video shows, there is a growing conflict between public health interests and business interests. Anytime oil/gas is involved, big money is at stake. Big Oil spends tens of millions of dollars lobbying politicians to favor their business, often at the expense of public health and the environment. Local businesses welcome all the truckers, traffic and drilling personnel because it means increased commerce. But at what cost?
Communities are fighting back. Do your homework and get to know about fracking. The articles below in Recommended Reading are a good start, and rent the HBO movie documentary Gasland. You will get a good background on how communities across the US are being effected. If you think your community is being impacted by fracking, the Gasland producers have setup a good website to learn more and with tips on how to Take Action, including links to elected officials, info on local organizations, and email action alerts. Remember – oil companies are funneling big money into politicians coffers to influence public policy. It will take your steady, informed, organized community voice to counter big oil special interests.
For ideas on how to hold your elected officials accountable, read Nicholas Kristof’s really fine article on The Power of Mockery. It highlights one of the most effective ways for grass-roots movements to speak truth to power. He also features Tina Rosenberg’s new book Join the Club: How Peer Pressure Can Transform the World. Kristoff offers examples of the techniques in action, including: how kids took on Big Tobacco and reduced teen smoking in Florida; the Egyptian revolution; Serbia, etc.
I just added this excellent video by Josh Fox, calling out NY Governor Cuomo on fracking. It is an excellent review of secret memos leaked from the gas industry, detailing how fracking system failures pollute our water resources. Rolling Stone Magazine online has a good article calling the Governor out on fracking.
And finally, support politicians that are committed to a strong Environmental Protection Agency (EPA).
The Trend Is Our Friend
Fossil fuels are becoming more expensive and extraction more toxic. The easy stuff has already been extracted over the decades. What remains poses greater and greater risk to public health and the environment. Fossil fuels are our past. Renewable energy is our future. Renewables are becoming cheaper and cheaper and are much cleaner to produce. Let’s not compromise our future trying to ring every last drop of oil and gas out of the ground. Support politicians that understand the pressing need to rapidly transition to renewable energy and invest in research and development, education, and regulation.
I’ll leave you with this interactive diagram from the Gasland website. Click on the small circles to learn more about fracking. Click on the “To The City” arrow to scroll the image to the left to see how fracking contaminated water effects community water systems.
WikiLeaks has released US embassy cables revealing that Saudi Arabia’s oil reserves have been exaggerated by as much as 40%, or 300 billion barrels. Saudi Arabia is currently the world’s largest oil exporter.
Though this may not be news to those who understand Peak Oil theory, it helps give a rare view in to secretive government views on this critical subject.
For readers new to Peak Oil – it is the point when the maximum rate of global petroleum extraction has been reached and is about to enter terminal decline. As demand exceeds supply, prices rise very quickly, usually resulting in economic recession.
Over the past 10 years, estimates on when peak oil will occur have rapidly converged on “sooner rather than later”.
Peak Oil has enormous implications for the global economy, especially transportation and food production sectors. In the US, transportation consumes about 2/3 of the oil we use, with the food sector consuming about 16% of oil for fetilizer, pesticides, productions, etc. See recommended reading below for more information. A 10 percent increase in the price of oil that lasted one year could result in the loss of 270,000 American jobs, according to a simulation by IHS Insight.
Many economists observe that the likely trigger for the 2008 recession/depression was the cost oil hitting extreme highs of over $140 per barrel. As we can see in the charts at right, the economic effects were stunning. Commuters stopped buying gas guzzlers (yet again). Mass transport and commuter rail increased by over 35% in many metropolitan areas. The economy collapsed. Fear set in. Searches via Google on the word “recession” went from zip to off-the-charts in a matter of weeks. Personal savings rates that were trending down, turned on a dime.
When do you think global oil production will peak? Take the Poll at the bottom of this article.
The secret cable is printed below, verbatim. Though it is written in the dry dispassionate tone of a bureaucrat, it is compelling reading.
C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 000732
NEA FOR DAS GGRAY DEPT OF ENERGY PASS TO A/S KKOLEVAR, MWILLIAMSON, AND DASAHEGBURG TREASURY PASS TO A/S CLOWERY CIA PASS TO TCOYNE E.O. 12958: DECL: 05/07/2018 TAGS: EPET, ENERG, ECON, NI, SA SUBJECT: PRINCE ABDULAZIZ ON ENERGY MARKETS, OPEC LAWSUITS
Classified By: DCM Michael Gfoeller for reasons 1.4 (b) (c) and (d).
1. (C) In a May 6 meeting with Assistant Minister of Petroleum (MinPet) Prince Abdulaziz bin Salman bin Abdulaziz Al-Saud, he outlined the Ministry’s latest thinking on record-high crude prices, and OPEC’s general refusal to budge on possible production increases. Contrary a few months ago, Prince Abdulaziz promised no relief on production or pricing. He told the Energy Attache that the Ministry was “extremely worried about demand destruction” in the U.S. as a result of the latest financial crisis indicators. However, he also fretted about squeezed refining margins in the U.S. and globally, noting the grave impact on U.S. refining utilization, currently running a scant 84 percent. He asked if the USG could assist the current political situation in Nigeria, where the production has collapsed to about a million barrels per day (mbpd) during the last week as a result of militant attacks and strikes. On the anti-OPEC lawsuits, he explained Saudi Arabia continued to gather amicus briefs for the now-consolidated cases in Texas. He generally dismissed the further threat of NOPEC legislation, saying if Congress could have passed the legislation, they would have done so already.
2. (C) Queried about Monday’s record surge in crude prices to above $120/barrel, Prince Abdulaziz noted, “We are extremely worried about demand destruction, like in the early 1980s. Aramco is trying to sell more, but frankly there are no buyers. We are discounting crudes, now we’re at a $10 differential between West Texas Intermediate (WTI) and Dubai Light, sometimes as much as a $12-$13 differential. Our buyers still bought less in April than they did in March.” Prince Abdulaziz attributed the lack of willing buyers to the current low refining margins. He indicated that that current high crude prices were squeezing refining margins, as refiners were unable to pass on the full brunt of crude prices to the end consumer. “There are no refining margins, refining margins have been shocked. It’s purely technical, not policy-induced. There are commercial impediments.” The consequence of poor refining margins was a declining refining utilization rate. Prince Abdulaziz fretted, “the U.S. refining utilization is 84 percent now, it’s usually above 90 percent. The quickest relief would be if crude prices would come down from these highs, if some of these political crises would resolve.” He queried if the USG could do anything to assist current political situation in Nigeria.
“Grey Area of Demand Destruction, We Must Hold Our Guard”
3. (C) Prince Abdulaziz dismissed speculation that King Abdullah’s press statements last week on Saudi Arabia planning to cap production capacity at 12.5 million barrels per day and leave oil in the ground for future generations represented a new policy. He stated, “It’s a statement of fact, we need to be credible. We’re pumping more than 9 million bpd, and right now, there is a grey area of demand destruction. We must hold our guard, and wait and see what happens with potential demand. Vice President Cheney was very complimentary about our maintaining spare capacity. We are honest with our commitments, we’ve been credible with our program. The other producing countries should do it the way we do. If we announce new capacity, we budget for it, we allocate for it, we acquire rigs, we have timelines. We don’t have pipedreams, if we make an announcement, we are certain to supply it.
Anti-OPEC Lawsuits and NOPEC Updates
4. (C) On the issue of pending lawsuits against Saudi Aramco and the national oil companies of other OPEC member and oil producing nations, Prince Abdulaziz indicated:
–the lawsuits had been successfully consolidated into one court in Texas;
–Saudi Arabia had worked with most other OPEC nations to file amicus briefs with the court.
–To Iran’s offer to file an amicus brief, Saudi Arabia had said, “thanks, but no thanks,” recognizing it probably would not be helpful in a U.S. court;
–The Mexicans and Russians would also file amicus briefs.
–The Norwegians also now have a case filed against them in Florida, so are reluctant to file an amicus brief.
Prince Abdulaziz believes the Departments of State and Justice seem to be coming around to filing a Statement of Interest (SOI) on behalf of the Saudi government in the lawsuits, but noted the White House was still concerned about the political optics of such a move. He felt such concerns were mis-placed now, particularly with respect to possibly fueling NOPEC legislation.
5. (C) Prince Abdulaziz indicated that if NOPEC had the strength to pass it would have done so already, but it hasn’t, in large part he felt due to the Administration’s clear opposition. He argued the lawsuits and NOPEC had much in common: “The Adminstration needs to be consistent in its policy. The effects of the lawsuits are very similar to that of NOPEC, but the plaintiffs are individual companies, rather than the Attorney General.” Prince Abdulaziz added, “Frankly our Embassy feels that once people are aware of the ramifications of such legislation, they’ll be reluctant to abuse it. The Minister has been very candid to explain the ramifications, which would be far more serious for the U.S. economy and energy markets than the Saudi markets.”
6. (C) Prince Abdulaziz seemed more comfortable with the state of play in the anti-OPEC lawsuits, his considerable earlier anxiety much diminished. He appears to have largely dis-missed NOPEC legislation as a credible threat for now. We are concerned that the Saudi energy leadership does not seem sufficiently well-advised on how the current high oil price environment is fueling U.S. election year “resource nationalism,” and how this might impact our bilateral relationship in future years. In this vein, King Abdullah’s recent comments that Saudi Arabia would cap its production capacity at 12.5 million bpd and leave crude in the ground for its children — while representing no new initiative or substance — seemed ill-timed at a moment when the market is looking for calming words from the world’s energy market leader. GFOELLER
Charles M. Blow, one of my favorite “number crunchers”, and op-ed columnist at the NY Times, has a good article today on what causes a revolution. He turns the lens on Egypt and Tunisia, as well as other countries that might be poised for revolution, and looks at what factors can contribute to people rising up and overthrowing their government.
Though agitating factors like unemployment and age have featured in many articles on the situation in Egypt and Tunisia, Charles M. Blow digs deeper. He prepared the table below, which shows median age, unemployment rate, income inequality, food as a percentage household spending, level of democracy, regime type, and internet penetration.
Worth noting: The real US unemployment rate is about 16%, when considering the more comprehensive U6 Rate. The US has the highest income inequality of all the countries considered in the list above. The US ranks with Rwanda and Uganda. For more on that, see the recent 8020 Vision article When Does the Wealth of a Nation Hurt its Wellbeing?
I am glad Blow listed food as one of the metrics to consider. There is a proverb that governments ignore at their peril:
“Lo que separa la civilización de la anarquía son solo siete comidas.”
(Civilization and anarchy are only seven meals apart.)
Though Egypt is not unique – corrupt repressive governance and cronyism can be found at the heart of many dysfunctional nations – once corruption interferes with meeting the basic needs of the populace, revolution is imminent.
The Basics Of Revolution
When I work with clients and this subject comes up, I like to turn to Maslow’s hierarchy of needs to put this in perspective. As we can see, two of Charles Blow’s metrics – food and unemployment – are fundamental components of basic human needs.
The lower down on Maslow’s pyramid a dysfunctional regime effects the populace, the deeper the impact, and the more likely the effected people will rebel. In other words, when a government fails to meet the basic human needs of its people, the people rise up.
Looking back in history for examples of how food and government are connected at the hip, our eyes come to rest on the Roman empire. Though the causes of the fall of Rome are debated still, one thing is certain: As the Roman empire devolved into the late-stage “Bread and Circuses” phase, once the farm system failed and the bread ran out, the rulers quickly lost the support of the people. The party was over.
The party is over in Egypt. President Mubarak now requires plainclothes thugs with clubs to beat back the public, losing what little credibility and dignity he might have had. How will he sleep? I don’t think the prideful Mubarak’s $60 billion family bank account will numb the shame he must feel as he watches the Egyptian army protect the people from his secret police.
As Tunisia and Egypt fail, Charles M. Blow scans his table of cold hard data and asks “Who’s next?”
“Seen through that prism (of food, income inequality, and internet penetration), Tunisia and Egypt look a lot alike, and Algeria, Iran, Jordan, Morocco and Yemen look ominously similar.“
A Global Perspective on Food
Pulling the lens back for a more global view – as world population expands inexorably – we are approaching a tipping point with regard to food production.
This week, a report that gained little attention in the news, but has major ramifications for every nation – especially those where food is a larger percentage of household income – was published by the UN’s Food and Agriculture Organization (FAO).
The FAO report – The World Food Situation – reports that world food prices surged to a new historic peak in January, for the seventh consecutive month. The FAO Food Price Index (below) is a commodity basket that regularly tracks monthly changes in global food prices.
This is the highest level (both in real and nominal terms) since FAO started measuring food prices in 1990.
As we can see from the chart on the right, the price of individual commodities that comprise the index – meat, dairy, cereals, oil and fats, and sugar – are all on the rise.
Global food prices have exceeded their pre-recession price levels. Some of this is due to the price of petroleum returning to pre-recession levels. About 17% of all petroleum production is consumed for food production. Petroleum is a key ingredient in the manufacture of fertilizer and pesticides, and sources energy for irrigation, food transport, etc. Note how the Food Price Index closely parallels the price of oil.
In addition, climate change is driving an increase in extreme weather, including record heat during growing seasons, record flooding, and extreme rain.