Resource Wars

A lot of things happened in 2006, but I bet you don’t recall reading about peak oil in the headlines. Peak oil refers to when the rate of petroleum extraction is reached, at which time production enters decline mode. According to the International Energy Agency (IEA) crude oil production peaked at 70 million barrels per day in 2006 and will never regain that height again.

What does this mean? It means, “The age of cheap oil is over,” said Fatih Birol, IEA chief economist. With nations making little to no effort to slow the demand for oil, prices will continue to rise.

According to the IEA, to keep production stable, it will mean much more production from oil fields (new and undiscovered) and monstrous investments, about $8 trillion over the next 25 years. The IEA also reports that production of tar sands will need to triple in that same time frame. However, tar sand production (barrel for barrel) is more expensive and worse for the environment, releasing between 5-15% more carbon dioxide compared to conventional oil production.

As Guy Caruso from the Center for Strategic and International Studies says, “It’s partly geological resource limitations,”–production has fallen faster than expected. He goes on to point out that there are other known areas of oil–Venezuela, Iraq, Kazakhstan, and Nigeria. He also points out that because of political turmoil, production in these countries is below its potential.

If we choose to extract oil from any of those four countries, we’ll be in the same (or worse) position we’re in right now. We will still be importing oil from politically volatile places. We will still be vulnerable to price spikes and shortages (spikes being something economies have the hardest time dealing with, says Caruso). We will still be in a position where we want to protect and control the flow of supplies which will require some form of military presence. We will still be shelling out trillions of dollars into a quickly dwindling resource.

Sir David King, director of Oxford’s Smith School of Enterprise and the Environment said that, “historians of the future will look back and see the Iraq war as the first resource war of the 21st century”, and I’m inclined to agree. Since the Carter Doctrine, the U.S. has been dependent on areas of the world subject to conflicts, violence, and overall disturbances for oil. The U.S. has used military force to assure the unimpeded flow of oil to Americans who rely on it for almost every aspect of life.  Oil markets are becoming increasingly volatile, to protect U.S. interests, a strong military hand will be (and has been) present in those oil rich countries as a disruption in oil supply would hit every aspect of the U.S. economy. This was true in the Gulf War, in the Iraq War, and will be true in any country we depend on for natural resources.

If conventional oil production has indeed peaked, we are at a crossroads of how to proceed as far as our energy production and consumption. Will we invest $8 trillion dollars in the oil industry? Will we go into yet another nation wrought with political discourse wielding our military might to secure what we want? Will we spend billions of dollars on said military might?

Perhaps, it’s high time to make a change and invest that $8 trillion into something other than oil. Maybe, it’s time we focus on finding a source of energy that can be produced domestically…something renewable…something sustainable…something that doesn’t spew carbon dioxide and countless other toxins into the environment…

Have you heard of anything like that?

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$2 Gas? I’m Not So Sure About That, Newt

I don’t know about where you live, but when I filled up this morning I paid over $4 dollars a gallon for gas. And not just a couple cents over mind you.

I’ve recently read some interesting articles revolving around gas prices. Specifically, about high gas prices and what a president can actually do about lowering them, which turns out to be not a whole lot.

With that being said, it may be a little confusing to some why Newt Gingrich is on his soap box promising gas prices to be $2.50 a gallon (or lower) if he’s elected president. Aside from the fact that his name is Newt and he looks like a goblin, I don’t know if that’s a statement I’m readily willing to believe.

When Obama took office, we were scoring gas at about $1.81 a gallon. We were also in the clutches of the worst global recession since the Great Depression. The recession depressed demand; less people were driving and costs went down. As the economy started chugging along once more, the price of gas rose. If Newt is able to deliver on his $2.50/gallon prices, there’s a good chance that means the economy has gone down the poop-shoot.

Under Obama (and his “all of the above” energy strategy), domestic drilling is booming and we’re importing less oil than we have in years, but as oil functions on a global market, domestic drilling doesn’t necessarily equal lower gas prices. For presidential candidates like Newt who are singing to the chorus of “drill baby, drill” –that won’t lower gas prices.

For those who might already be skipping towards Blame Road and Keystone Pipeline Lane, Obama’s blockage of the oil pipeline is not causing the high price of gas. In fact, Keystone would have little immediate effect on gas prices, and on a long term would probably only lower prices a few cents–maybe.

Gas prices are higher is because the economy is doing better, driving up the demand for gas. And with tensions and uncertainties in the Middle East, in addition to countries like China who are anticipated to use 5% more gas this year, prices will continue to rise.

It’s going to take more than drilling to solve our energy problems. An overall energy efficient economy will help make us more resilient to high costs and price spikes. Hopefully the American people realize that when voting time comes.