What is America’s energy policy? A 2006 Senate hearing on “energy independence”

[In the future when the permanent oil crisis hits, everyone will wonder what the hell the U.S. energy policy was and why didn’t anyone tell Americans or do anything about it. This is a rather long post, and I tried to put the most interesting bits at the top, but I won’t blame you if you don’t finish reading it.  Alice Friedemann at www.energyskeptic.com]

But first a brief excerpt about why EROI does not inform government policy, even though it is the only rational way to evaluate energy resources from:  Murphy, David J. December 2, 2013. The implications of the declining energy return on investment of oil production. Trans. R. Soc. A 2014 372  

Estimates of EROI are important because they provide a measure of the relative ‘efficiency’ of different energy sources and of the energy system as a whole. Since it is this net energy that is important for long-term economic growth, measuring and tracking the changes in EROI over time may allow us to assess the future growth potential of the global economy in ways that data on production and/or prices cannot.

A workshop in Sweden in 1974 and one at Stanford, CA, in 1975 formalized the methodologies and conventions of energy analysis. In 1974, the US Congress enacted specific legislation mandating that net energy be accounted for in energy projects. The Nuclear Energy Research and Development Act of 1974 (NERDA) included a provision stating that ‘the potential for production of net energy by the proposed technology at the stage of commercial application shall be analyzed and considered in evaluating proposals’. Further influential papers by the Colorado Energy Research Institute, Bullard et al. and Herendeen followed this requirement. Unfortunately, the net energy provision within the NERDA was never adopted and was eventually dropped.

In 1979, the Iranian revolution led to a cessation of their oil exports (the second oil shock), which precipitated another spike in the price of oil and squeezed an already strained US economy. Responding to this, and in an attempt to control deficits and expenditure, President Reagan of the USA enacted Executive Order 12291 in 1980. This order mandated that ‘regulatory action shall not be undertaken unless the potential benefits to society from the regulation outweigh the potential costs to society’. In other words, all US regulatory action had to show a net monetary benefit to US society, and the idea of measuring benefits in terms of net energy fell even further from the policy arena.

Net energy analysis remained insignificant in US energy policy debates until the dispute over corn ethanol emerged 25 years later.

Although the political emphasis had now shifted towards economic analysis, the 1980s still provided useful papers on net energy analysis. In 1981, Hall published ‘Energy return on investment for United States petroleum, coal, and uranium’, which marked the first time that the acronym EROI was published in the academic literature. Following growing concern about environmental impacts, climate change and sustainability, documented in the Brundtland Report in 1987, emphasis began to shift from energy analysis to greenhouse gas (GHG) emissions and life-cycle analysis.

Excerpts from: S. HRG. 109-412. March 7, 2006. Energy independence. U.S. Senate Committee on energy & natural resources. 103 pages.


Please accept my thanks for the opportunity to submit this statement as part of the record of today’s hearing in the issue of oil dependence—or, as President Bush put it, our ‘‘addiction’’ to oil. Let me be clear that I am under no illusions that our economy can be completely energy independent in the literal sense of that term. We can, however, ensure that our economy grows while becoming less and less oil-intensive. We have the technology to do it, we have the homegrown fuels to do it and, more and more, I believe we have the will to do it. And, if we succeed we will be making our economy more and more resilient against the dangers and shocks of the global oil system, while freeing our national security and our foreign policy from the very real threats and distortions that our oil-dependence imposes.

While geologists and economists can debate when the oil supply will ‘‘peak,’’ what is indisputable is that demand is now exploding as developing nations such as India and China increase consumption.

According to the IEA, global demand for oil—now about 85 million barrels a day— will increase by more than 50% to 130 million barrels a day between now and 2030 if nothing is done. The industrialized world’s dependence on oil heightens global instability. The authors of the IEA report note that the way things are going ‘‘we are ending up with 95% of the world relying for its economic well-being on decisions made by five or six countries in the Middle East.’’ The recent attack on the Abqaiq oil processing facility in Saudi Arabia reminds us not only of our dangerous dependence on foreign oil, but that that vulnerability is recognized by our enemies. Besides the Mideast, I would add that Nigeria is roiled by instability, Venezuela’s current leadership is hostile to us and Russia’s resurgent state power has ominous overtones.

We are just one well-orchestrated terrorist attack or political upheaval away from a $100-a-barrel overnight price spike that would that would send the global economy tumbling and the industrialized world, including China and India, scrambling to secure supplies from the remaining and limited number of oil supply sites. History tells us that wars have started over such competition.

Left unchecked, I fear that we are literally watching the slow but steady erosion of America’s power and independence as a nation—our economic and military power and our political independence. We are burning it up in our automobile engines and spewing it from our tailpipes because of our absolute dependence on oil to fuel our cars and trucks. We need to transform our total transportation infrastructure from the refinery to the tailpipe and each step in between because transportation is the key to energy independence.

That dependence on oil—and that means foreign oil because our own reserves are less than 1 percent of the world’s oil reserves—puts us in jeopardy in three key ways—a convergence forming a perfect storm that is extremely dangerous to America’s national security and economy.

First, the structure of the global oil market deeply affects—and distorts—our foreign policy. Our broader interests and aspirations must compete with our own need for oil and the growing thirst for it in the rest of the world—especially by China and India. As a study in the journal Foreign Affairs makes clear, China is moving aggressively to compete for the world’s limited supplies of oil not just with its growing economic power, but with its growing military and diplomatic power as well. Second, today we must depend for our oil on a global gallery of nations that are politically unstable, unreliable, or just plain hostile to us. All that and much more should make us worry because if we don’t change—it is within their borders and under their earth and waters that our economic and national security lies. Doing nothing about our oil dependency will make us a pitiful giant—like Gulliver in Lilliput—tied down by smaller nations and subject to their whims. And we will have given them the ropes and helped them tie the knots.

We can take on this problem now and stand tall as the free and independent giant we are by reducing America’s dependence on oil.

I can almost hear colleagues murmur, So, Senator Lieberman, what else is new? We’ve been hearing this for years and nothing has happened. I can’t blame you if you are skeptical. The struggle for oil independence has been going on at least since Jimmy Carter was President.

But things have changed since the days of Jimmy Carter and even since last summer. There is a new understanding of the depth of the crisis that our oil dependence is creating. Last summer’s doubling of gasoline and crude oil prices hit tens of millions of Americans with the global reality of oil demand and pricing. And Hurricane Katrina reminded us how vulnerable our supplies can become. This reality is bipartisan.

We will push harder for more and quicker production and commercialization of biomass-based fuels.

As always, there is a do-nothing crowd that says the ever-rising price of gasoline and crude oil are the cure—that with higher prices people will reduce consumption and the market will respond with greater investments in the supply of oil to bring prices down. But all that would do is perpetuate the problem. Market-driven oil-dependency is still dependency on foreign oil, driving us further down the current path toward national insecurity and economic and environmental troubles.

Some say that we can ease the crisis through greater domestic drilling—in places like the Arctic Refuge and other public lands or off our shores. But that won’t make a dent in the problem. In the world of oil, geology is destiny and the U.S. today has only 1 percent of the world’s oil reserves. And that small new supply wouldn’t matter much in the global market, since the price of oil produced within the United States rises and falls with the global market, regardless of where it is produced. We just don’t have enough oil in the U.S. anymore. And no matter how much more we drill, we will still be paying the world price of oil—not an American price.

FRANK VERRASTRO, Director & SENIOR FELLOW, Energy Program, Center for Strategic & International Studies 

Analysis performed by EIA and the National Renewable Energy Lab estimates that even under optimistic assumptions, alternative transport fuels, excluding electric hybrid plug-ins, can be expected to displace or replace a maximum of 10% of conventional liquid transport fuels by 2030, leaving petroleum-based fuels, new technologies, conservation, and improved efficiency gains to deal with the remaining 90%. For purposes of comparison, a billion gallons of alternative fuels per year roughly translates to 65,000 barrels a day of conventional gasoline and maybe less depending on energy context. And we currently consume over nine million barrels a day of gas every day. In short, while contributions from alternate fuels will be helpful as a component in meeting increased consumer demand, petroleum-based fuels are likely to remain the overwhelming fuel of choice for at least the next 20 years.

At the same time, however, we cannot ignore preparations for transitioning to the inevitable post-oil world, a transition which former Energy and Defense Secretary, Jim Shlesinger, has characterized as the greatest challenge this country and the world will face outside of war.

To the extent practicable, every effort should be made to pursue policies and changes that fully take into account investment in market practices and utilize as much as possible existing infrastructure and currently available technologies.

And fuels alone are not the answer. We need radical changes to our motor vehicles, both in terms of energy and design and construction material, as well as to the way we transport goods and people.

We frequently speak about politically unstable sources of supplies from around the globe, but the largest protracted losses of global oil and gas output in both 2004 and 2005 were the results of hurricanes in the U.S. Gulf of Mexico.

My professional background also includes a variety of energy policy positions in the White House, and the Departments of Interior and Energy, as well as senior executive positions dealing with both upstream and downstream issues in the energy sector, first as Director of Refinery Policy and Crude Oil Planning for TOSCO Corporation, and more recently as a Senior Vice President at Pennzoil Company.

My concern over the continued ability of this nation to secure energy supplies from an increasing list of inaccessible, high risk or less than reliable parts of the world has prompted policymakers to once again raise the issues of both the desirability and achievability of energy independence.

Consumers have come to both enjoy and expect a healthy domestic economy, which is underpinned by an energy supply that is at once available, affordable, secure, and environmentally benign. In this new world are those criteria able to be satisfied or are they just beyond the reach of current energy paradigms and policies? Global energy demand is projected to increase by 50% over the next 25 years, yet the relative shares of the 5 major fuel groups—oil, natural gas, coal, nuclear and renewables—are expected to remain remarkably constant, with fossil fuel consumption still accounting for over 85% of total energy demand in 2025. In the developing world, that figure exceeds 90%, carrying obvious consequences for consumer competition and the environment. As we consider our energy options, I would strongly urge that we not forget the substantial contributions that conservation and improved efficiency can make to achieving our future energy goals.

In the power generation sector, it currently takes 3 to 4 units of primary energy to produce one unit of delivered electricity. Conservation, efficiency and infrastructure delivery improvements coupled with additional contributions from renewable energy sources can obviate the need for additional, incremental production of fossil fuels for power generation purposes.

Analyzing this forecasted future leads to 2 inescapable conclusions. The first is that absent major technological breakthroughs, significant changes in consumption patterns and policies, or massive dislocations that alter the course of events, the consumption trends depicted by this chart are simply unsustainable for the long term. Secondly, even assuming a significant contribution from a wide range of alternative fuels, conventional energy sources will continue to dominate the landscape for at least the next several decades.

For the past 30 years, U.S. oil policy initiatives have centered around 4 major themes: increasing and diversifying sources of conventional and unconventional energy supplies both at home and abroad; encouraging, wherever practicable and politically achievable, the adoption of improvements in conservation and fuel efficiency; the expansion of the strategic petroleum reserve; and reliance on Saudi Arabia to balance oil markets and moderate prices. For the most part, in an era of surplus supply, this strategy has largely worked. Times and market conditions, however, may well be changing. Global demand for all energy forms is accelerating, and resources are increasingly controlled by national players, whose primary national objectives may not conform to traditional market practices or concerns. It took the world 18 years (from 1977-1995) to grow global oil demand from 60 to 70 million barrels per day (mmb/d); eight years to grow from 70 to 80 mmb/d; and if current projections are correct, global oil demand will exceed 90 mmb/d by 2010. Forecasts for oil consumption in 2030 approximate 115-120 mmb/d—roughly half again as much as we currently consume. Setting aside the debate about resource availability or so called ‘‘peak oil,’’ market growth of that magnitude will require huge investments, place enormous strains on transportation and infrastructure needs, and carry significant implications for security, global geopolitics and the environment.

In addition, the entry of new market players, like China and India, with growing energy appetites and expanding economies may pose competitive threats to America’s market dominance. Added to that are heightened security concerns about threats to infrastructure and facilities posed by terrorist groups and insurgents. Taken together, these changing circumstances have the potential to re-order the marketplace and fundamentally alter the geopolitical balance that has governed the past half century. Such changes may also warrant a thoughtful recalibration of our economic, security, environmental, energy and foreign policy calculations and policy choices.

The United States is currently the world’s largest producer, consumer, and net importer of energy. We are home to roughly 5% of the world’s population and produce 17 percent of the total energy supplied.

Yet in the process of generating some 30 percent of global GDP, America consumes nearly a quarter of the world’s energy.

Projected supplies of LNG imports assume that additional regasification capacity will be permitted and constructed either within the United States or in areas proximate to U.S. borders—an uncertain assumption. In addition to environmental, safety, competition, and siting issues, opponents of additional LNG re-gas projects increasingly cite security and foreign policy concerns about exposing the U.S. electric grid system to reliance on imports from countries, many of which are oil exporters found in troubled regions of the world.

Biomass. Since only a portion of the plant material can be used to produce ethanol, issues have been raised about how to handle the residual waste material—e.g., stalks, leaves and husks. A partial answer to this dilemma has resulted in research into what is called cellulosic ethanol, but transportation and energy content issues still remain to be resolved. For example, since a gallon of ethanol contains less energy than a comparable gallon of gasoline, poorer mileage ratings and more frequent fuel stops are impediments that need to be overcome. Additionally, cold weather start problems and transport in carriers other than pipelines may complicate gasoline substitution on a national scale.

Based on current government data, the capital investment costs for most, if not all, of these synthetic fuel technologies is considerably more than that required for a traditional crude oil refinery (see page 57, of EIA’s 2006 Annual Energy Outlook). Further, for purposes of comparison, EIA estimates that there is currently some 300,000 b/d of installed corn ethanol capacity in the United States and an additional 12,000 b/d of biodiesel capacity. Additionally, excluding ‘‘pilot’’ facilities, the latest EIA statistics indicate that there are currently no commercial BTL, GTL or CTL plants in the United States. In contrast, U.S. refining capacity currently exceeds 17,000,000 barrels per day and domestic gasoline demand averages over 9,000,000 barrels per day.

Absent significant policy and regulatory changes to promote increased fuel efficiency, major technological breakthroughs, and substantial changes in consumer/ driver behavior (based on environmental, security or foreign policy considerations), petroleum based fuels will remain the overwhelming fuel of choice for at least the next 20-30 years.

Given projections for increasing fuel demand, the inescapable conclusion is that oil imports will also be with us for decades to come. In that context, we would do well to ratchet down the political rhetoric surrounding the notion of achieving energy independence and instead refocus our efforts to deal with an inter-dependent energy future and simultaneously prepare for the (longer term) transition to a post-oil world, a transition which former Energy and Defense Secretary James Schlesinger has characterized as ‘‘. . . the greatest challenge this country and the world will face—outside of war.’’

U.S. OIL IMPORTS—SOURCES AND CONCERNS. In his State of the Union address, President Bush advanced the challenge of reducing this nation’s ‘‘addiction to oil’’ and reducing by 75% our reliance on oil imports from the Middle East. At best, this line was a thinly veiled attempt to drum up domestic political support for a valiant yet difficult effort to reduce petroleum consumption. At worst, it showed a decided lack of understanding of U.S. import sources, global oil markets and reserve holders.

PITFALLS AND WARNINGS. As with any transformational change, issues surrounding the approach, time horizon and levers designed to accomplish the objective remain keys to success. Dealing with an energy transition is no less daunting. To the extent practicable, every effort should be made to pursue policies and changes that fully take into account investment and market practices and utilize as much as possible existing infrastructure and currently available technologies. Minimizing uncertainty, avoiding conflicting or contradictory policy signals, and evaluating/selecting options based on economic efficiency and merit rather than political efficacy are also are highly recommended.

Changing market and political conditions may complicate America’s policy agenda going forward, and these include:

  1. Energy security, broadly defined in terms of attacks on infrastructure, and greater vulnerability to imported energy supply threats, either physical or financial, due to growing production concentration;
  2. Market developments, particularly in alternative fuels and with respect to climate change. In the future, markets may drive policy more than policy drives markets;
  3. Less multilateral cooperation in the international oil trading and investment market places as governments pursue specific narrow interests;
  4. Increased vulnerability to supply disruptions due to growing natural gas import dependence in the power sector; and
  5. Political hostility to U.S. policy in specific regions as allies and friends abandon the United States to ensure their own political survival.

This almost inevitable growth in reliance on foreign supplies would, to the casual observer, seem to be a call to action, to define and implement policies that would concomitantly expand domestic supplies while setting demand management efforts in motion. To do so, however, requires a certain political will on the part of both the U.S. consumer and the government. And, to date, despite higher energy prices, real and threatened interruptions in supply, environmental damage, hurricanes and blackouts, that critical ingredient remains lacking.

All energy producer/exporters and consumer/importers are bound together by a mutual interdependency. All are vulnerable to any event, anywhere, at any time, which impacts on supply or demand. This means that the U.S. energy future likely will be shaped, at least in part, by events outside of our control and beyond our influence. Calls for energy independence, absent major technological breakthroughs and a national commitment, ring hollow, and in the near term are both unrealistic and unachievable.

In the absence of decisive political will to undertake those steps necessary to improve efficiency, promote conservation, encourage the development of domestic energy resources and renewable energy forms, learning to manage the risks accompanying import dependency may be the only reasonable course of action.



United States dependence on oil is the preeminent challenge of our generation. U.S. oil consumption affects more than just prices at the pump; it impacts our national security, our economy, our fiscal health and our environment. The United States uses 25% of the world’s oil but controls only 3% of the world’s proven oil reserves. As of right now, our demand from oil is only expected to grow, from nearly 21 million barrels a day now to 28 million barrels per day in 2030, of which nearly 70% will be imported. While demand in the U.S. will grow by approximately 25%, demand in China, India and other developing countries is projected to grow by 66%. To meet the projected world demand, global output would have to expand by 57% in 2025.

The Energy Information Administration’s (EIA) most recent forecast states that the price of crude is expected to remain high at $57 per barrel in 2030. The International Energy Agency (IEA) price forecast is even more dire. According to the IEA, if oil producing countries in the Middle East and Africa do not make immediate investments to increase production, the price will rise to $86 barrel in 2030. Even if the region does make the necessary investments, prices could average $65 a barrel.

These forecasts assume the current projections for supply and demand but do not address the consequences of a supply disruption caused by terrorism, political unrest or weather. Last summer, the National Commission on Energy Policy and Securing America’s Energy Future conducted a simulation called Oil Shock Wave to explore the potential security and economic consequences of an oil supply crisis. The event started by assuming that political unrest in Nigeria combined with unseasonably cold weather in North America contributed to an immediate global oil supply shortfall. This sent prices to over $80 barrel. The simulation then assumed that 3 terrorist attacks occur in important ports and processing plants in Saudi Arabia and Alaska which sent oil prices immediately soaring to $123 a barrel and $161 barrel 6 months later. At these prices, the country goes into a recession and millions of jobs are lost as a result of sustained oil prices.

This simulation almost became reality with the failed attack on Abqaiq in Saudi Arabia last month. Had the attack been successful, it would have removed 4to 6 million barrels per day from the global market sending prices soaring around the world and would likely have had a devastating impact on our economy.

One of the lessons from September 11th is that we can no longer be so dependent on places like Saudi Arabia, Russia and Venezuela for our energy supply. Yet we are more dependent on foreign oil from hostile countries today than we were on September 11th—making us more vulnerable and putting the United States in a uniquely disturbing position of bankrolling both sides in the War on Terror. This goes to the heart of our security and our sovereignty. As the world confronts the prospect of a nuclear Iran, our leverage is dramatically limited by the fact that Iran is the second largest exporter of oil. We and our allies are vulnerable to energy blackmail. A few months ago, the Russians decided they weren’t pleased with the Ukrainian elections, so they simply decided to stop exporting natural gas to them— nearly causing an economic crisis in the region.

How can we be sure that the radicals and America-haters who control the oil will never do that to us? Our economy is vulnerable to the price volatility of the oil market and we must do what we can to build resilience into our economy. Decreasing the oil intensity of our economy will help us weather price shocks and make us more secure. We can reduce oil intensity by reducing our demand for oil.

The risks faced above ground by depending on unstable suppliers and good weather are too great and to a certain extent out of our control. If the attack on Abqaiq would have been successful, there is little that we could do to moderate its impact on our economy and lower the prices which is why it is urgent that Congress and the President act now to start reducing our dependence on oil. There is no magic bullet to address a major shock to the oil market and we must take the steps necessary to reduce our dependence on oil which will make our nation stronger. We must bring the same urgency to energy security that we have on the War on Terror.

The Vehicle and Fuel Choices for American Security Act (VFCASA makes significant reductions in our oil use. We chose this title because nothing less than our national security is at stake. This bill would reduce projected oil use by 2.5 million barrels per day in 2016 and 7 million barrels per day in 2026. It also provides tools to meet these aggressive targets by improving the efficiency of vehicles and increasing the production and use of biofuels. VFCASA includes new approaches for manufacturers, the federal government, scientists and consumers, all designed to encourage greater energy security.  Other Senators are Joseph Lieberman of Connecticut, Sam Brownback of Kansas, Norm Coleman of Minnesota, Lindsey Graham of South Carolina, Ken Salazar of Colorado, Jeff Sessions of Alabama, Bill Nelson of Florida, Richard Lugar of Indiana, Barack Obama of Illinois, Johnny Isakson of Georgia and Lincoln Chafee of Rhode Island. I hope that in the future we all look back on the day this bill was introduced as the beginning of a major shift in our national security strategy. I hope that history will say we saw a challenge to our national security and prosperity and then met it and mastered it.

The legislation requires that in 2012, 10% of vehicles manufactured be flexible fuel vehicles, alternative fueled vehicles, hybrids, plug-in hybrids, advanced diesels and other oil saving vehicle technologies. This percentage rises each year until 50% of the new vehicle fleet will be one of these oil saving technologies. It also provides tax incentives for U.S. manufacturing facilities to retool existing facilities to produce advanced technology vehicles which will help shift the vehicle fleet to more efficient vehicles while minimizing the job impact of an increased market share of advanced technology vehicles. The bill builds on the Energy Policy Act (EPAct) of 2005 by expanding the number of consumers that can take advantage of the tax credit available for the purchase of more efficient vehicles. It offers a tax credit to private fleet owners who invest in more efficient vehicles.

VFCASA contains robust research provisions in the areas of electric drive transportation, including battery research, lightweight materials and cellulosic biofuels. Each of these technologies hold great potential to play a key role in reducing our dependence on oil. For instance, lightweight materials, such as carbon composites and steel alloys, hold the promise of being able to double automotive fuel economy while improving safety without increasing the cost of the vehicle. Cellulosic biofuels, which the President mentioned in the State of the Union, have the promise to be cheaper than gasoline and produce 7 to 14 times more energy than is used in its production. My bill doubles the funding for bioenergy research contained in EPAct and provides additional funding for production incentives for the production of cellulosic biofuels. The average American automobile might remain in operation for 15 years or more. This means that it is essential that we begin immediately to deploy oil saving technologies.

Addressing our dependence on oil is a challenge that we can no longer ignore. Events in the world from September 11th to Hurricane Katrina to the recent attempted terrorist attack in Saudi Arabia continue to show us how urgent it is that we act immediately. I hope that this hearing today is the only the Committee’s first step in tackling the challenge of American oil dependence.

DIANNE FEINSTEIN, U.S. SENATOR from California (raise fuel economy, close SUV/light-truck loophole)

The amount of oil imported into the United States has climbed from 6 million barrels of oil per day in 1973 to 12 million barrels per day in 2004 (Energy Information Administration). And the percentage of foreign oil consumed in the U.S. has climbed from 35% in 1973 to 59% in 2004.

So while there has been a lot of talk about decreasing our nation’s dependence on foreign oil, most of it has been empty rhetoric. This week’s cover story of BusinessWeek is ‘‘The New Middle East Oil Bonanza.’’ With oil prices so high, partially due to fear of oil production disruptions in Nigeria, Saudi Arabia, Venezuela, and elsewhere, billions of dollars are going into the coffers of oil-producing nations.

I am seriously concerned about the impacts of America’s overdependence on foreign oil. This cannot continue. For foreign policy and for environmental reasons, the overdependence on oil is a real problem. With 5% of the world’s population, we cannot continue to use 25% of the world’s oil supply. Especially not with India and China developing at their current pace. There are things we could do today to reduce our dependency on oil, and yet we need the political will to get them accomplished. Specifically, we must raise the nation’s fuel economy standards. The Consumer Federation of America estimates that increasing the fuel economy of our domestic fleet by 5 miles per gallon would save about 23 billion gallons of gasoline each year, reducing oil imports by an estimated 14%. A fleet-wide increase of 10 miles per gallon would save 38 billion gallons, cutting imports by almost 20%. That is why I have introduced a very modest bill for the past three Congresses that would close a loophole in current law that allows SUVs and other light trucks to meet less stringent fuel economy standards than other passenger vehicles.

If the SUV loophole were closed, the savings would be rather dramatic. More than 480,000 SUVs were sold in the first quarter of 2005. If those SUVs achieved an average fuel economy of 27.5 miles per gallon, we would reduce gasoline use by more than 81 million gallons of a year. And that’s just for SUVs sold in the first quarter of 2005. If this bill were to pass, the United States would save 1 million barrels of oil a day and decrease foreign oil imports by 10%. Yet the automobile manufacturers continue to fight this proposal tooth and nail and for reasons I cannot understand. The technology to make these vehicles more efficient is available today and American auto companies are making vehicles to meet fuel economy standards in other countries. China, for instance, has issued fuel efficiency standards that are more stringent than ours. If American auto companies hope to make cars that will compete in China, then they will need to make them more fuel efficient. I hope the representative from Ford will be able to address this issue in her statement. If the Federal Government is not going to act, Congress should not stop the States from acting.


James Woolsey, Director of Central Intelligence, 1993-95, VP Booz Allen Hamilton

I believe that energy independence is principally an issue of oil and conventional oil. The dangers of petroleum dependence and the urgency, I think, are guided by some seven factors. First , the current transportation infrastructure is committed to oil and oil-compatible products. So major investments, whereas they may be wise, in electricity generation of different types, whether it is renewables, nuclear, or whatever, has very little impact today on oil use. They are important for other reasons, but not particularly with respect to oil use. In my judgment, hydrogen will take too long to satisfy some of the urgency that should be attached to our current oil dilemma.

A second factor is that the greater Middle East is going to continue to be the low-cost and dominant petroleum producer for the foreseeable future and hold two-thirds of the world’s proven reserves. The growth we expect in China and India and elsewhere is going to keep demand up for a substantial time and put the greater Middle East and particularly Saudi Arabia more and more in the driver’s seat. Petroleum infrastructure is very vulnerable to terrorist attacks and other types of potential cut-offs. Ten days ago, we had the attack at Abqaiq. We have hurricane damage possible in the gulf coast. We have the possibility of regime change in the Middle East. There was almost a coup in Saudi Arabia in 1979. This reliance on this part of the world is going to be a problem for us for a long time.

The possibility exists not only of a regime change and terrorist attacks, but also of financial disruption as a result of how much we are borrowing to finance our oil habits. We borrow approximately a billion dollars every working day, $250 billion a year, about a third of our overall trade deficit, in order to import oil. And over the last 30 years, some $70 to $100 billion of that has been provided by Saudi Arabia as a government and certainly more by individuals to causes such as the Wahhabi schools in Madras and Pakistan, and elsewhere in the Middle East. We found when I was chairman of the Board of Freedom House, even mosques here in the United States, very, very strongly hate literature. We are paying for that, and that is essentially the same set of beliefs that are propagated by al Qaeda. The only difference between the Wahhabis and al Qaeda is who should be in charge. But the underlying hatred of other religions, democracy and the rest, we pay for in no small measure through our borrowing for oil.

For many developing countries, oil debt is a huge share of their national debt and, therefore, of their problem of poverty. We suggest, and these suggestions were stated by former Secretary of State, George Schultz, and I in a piece last summer—we co-chaired the committee on the present danger—that one should focus on making changes that can be made within the existing infrastructure, can be made relatively soon, and which use cheap or even waste products as feedstocks. And those are the reasons why in the last several pages of testimony, Mr. Chairman, that I suggest that we concentrate—even though there are other worthy things to do—we concentrate on such things as biofuels, particularly ethanol from cellulose, which in the long run is going to be much cheaper than making it from corn or other starches, that we concentrate on diesel from waste products of all kinds, which is coming to be technologically quite feasible.

I served as Director of Central Intelligence, 1993-95, one of the four Presidential appointments I have held in two Republican and two Democratic administrations; these have been interspersed in a career that has been generally in the private practice of law and now in consulting.

Energy security has many facets—including particularly the need for improvements to the electrical grid to correct vulnerabilities in transformers and in the Supervisory Control and Data (SCADA) systems. But energy independence for the U.S. is in my view preponderantly a problem related to oil and its dominant role in fueling vehicles for transportation.

These dangers in turn give rise to two proposed directions for government policy in order to reduce our vulnerability rapidly. In both cases it is important that existing technology should be used, i.e. technology that is already in the market or can be so in the very near future and that is compatible with the existing transportation infrastructure. To this end government policies in the United States and other oil-importing countries should: (1) encourage a shift to substantially more fuel-efficient vehicles within the existing transportation infrastructure, including promoting both battery development and a market for existing battery types for plug-in hybrid vehicles; and (2) encourage biofuels and other alternative and renewable fuels that can be produced from inexpensive and widely-available feedstocks—wherever possible from waste products.

PETROLEUM DEPENDENCE: THE DANGERS: 1. The current transportation infrastructure is committed to oil and oil-compatible products. Petroleum and its products dominate the fuel market for vehicular transportation. This dominance substantially increases the difficulty of responding to oil price increases or disruptions in supply by substituting other fuels.

Substituting other fuels for petroleum in the vehicle fleet as a whole has generally required major, time-consuming, and expensive infrastructure changes. One exception has been some use of liquid natural gas (LNG) and other fuels for fleets of buses or delivery vehicles, and the use of corn-derived ethanol mixed with gasoline in proportions up to 10 per cent ethanol (‘‘gasohol’’) in some states. Neither has appreciably affected petroleum’s dominance of the transportation fuel market.

There are imaginative proposals for transitioning to other fuels for transportation, such as hydrogen to power automotive fuel cells, but this would require major infrastructure investment and restructuring. If privately-owned fuel cell vehicles were to be capable of being readily refueled, this would require reformers (equipment capable of reforming, say, natural gas into hydrogen) to be located at filling stations, and would also require natural gas to be available there as a hydrogen feed-stock. So not only would fuel cell development and technology for storing hydrogen on vehicles need to be further developed, but the automobile industry’s development and production of fuel cells also would need to be coordinated with the energy industry’s deployment of reformers and the fuel for them. Moving toward automotive fuel cells thus requires us to face a huge question of pace and coordination of large-scale changes by both the automotive and energy industries. This poses a sort of industrial Alphonse and Gaston dilemma: who goes through the door first? (If, instead, it were decided that existing fuels such as gasoline were to be reformed into hydrogen on board vehicles instead of at filling stations, this would require on-board reformers to be developed and added to the fuel cell vehicles themselves—a very substantial undertaking.)

It is because of such complications that the National Commission on Energy Policy concluded in its December, 2004, report ‘‘Ending The Energy Stalemate’’ (‘‘ETES’’) that ‘‘hydrogen offers little to no potential to improve oil security and reduce climate change risks in the next twenty years.’’  To have an impact on our vulnerabilities within the next decade or two, any competitor of oil-derived fuels will need to be compatible with the existing energy infrastructure and require only modest additions or amendments to it.

The Greater Middle East will continue to be the low-cost and dominant petroleum producer for the foreseeable future Home of around two-thirds of the world’s proven reserves of conventional oil—45% of it in just Saudi Arabia, Iraq, and Iran—the Greater Middle East will inevitably have to meet a growing percentage of world oil demand.

One need not argue that world oil production has peaked to see that this puts substantial strain on the global oil system. It will mean higher prices and potential supply disruptions and will put considerable leverage in the hands of governments in the Greater Middle East as well as in those of other oil-exporting states which have not been marked recently by stability and certainty: Russia, Venezuela, and Nigeria.

Deep-water drilling and other opportunities for increases in supply of conventional oil may provide important increases in supply but are unlikely to change this basic picture. If world production of conventional oil has peaked or is about to, this of course further deepens our dilemma and increases costs sooner. Even if other production comes on line, e.g. from unconventional sources such as tar sands in Alberta or shale in the American West, their relatively high cost of production could permit low-cost producers of conventional oil, particularly Saudi Arabia, to increase production, drop prices for a time, and undermine the economic viability of the higher-cost competitors, as occurred in the mid-1980’s.

The petroleum infrastructure is highly vulnerable to terrorist and other attacks. The radical Islamist movement, including but not exclusively al Qaeda, has on a number of occasions explicitly called for worldwide attacks on the petroleum infrastructure and has carried some out in the Greater Middle East. A more well-planned attack than the one that occurred ten days ago at Abquaiq—such as that set out in the opening pages of Robert Baer’s recent book, Sleeping With the Devil, (terrorists flying an aircraft into the unique sulfur-cleaning towers at the same facility)—could take some six million barrels per day off the market for a year or more, sending petroleum prices sharply upward to well over $100/barrel and severely damaging much of the world’s economy. Domestic infrastructure in the West is not immune from such disruption. U.S. refineries, for example, are concentrated in a few places, principally the Gulf Coast.

Last summer’s accident in the Texas City refinery—producing multiple fatalities—points out potential infrastructure vulnerabilities, as of course does this past fall’s hurricane damage in the Gulf. The Trans-Alaska Pipeline has been subject to several amateurish attacks that have taken it briefly out of commission; a seriously planned attack on it could be far more devastating. In view of these overall infrastructure vulnerabilities policy should not focus exclusively on petroleum imports, although such infrastructure vulnerabilities are likely to be the most severe in the Greater Middle East. It is there that terrorists have the easiest access, and the largest proportion of proven oil reserves and low-cost production are also located there. But nothing particularly useful is accomplished by changing trade patterns. To a first approximation there is one worldwide oil market and it is not generally helpful for the U.S., for example, to import less from the Greater Middle East and for others then to import more from there. In effect, all of us oil-importing countries are in this together.

The possibility exists, both under some current regimes and among those that could come to power in the Greater Middle East, of embargoes or other disruptions of supply. It is often said that whoever governs the oil-rich nations of the Greater Middle East will need to sell their oil. This is not true, however, if the rulers choose to try to live, for most purposes, in the 7th century. Bin Laden has advocated, for example, major reductions in oil production and oil prices of $200/barrel or more. As a jihadist Web site has just stated in the last few days: ‘‘[t]he killing of 10 American soldiers is nothing compared to the impact of the rise in oil prices on America and the disruption that it causes in the international economy.’’ Moreover, in the course of elaborating on Iranian President Ahmedinejad’s threat to destroy Israel and the U.S., his chief of strategy, Hassan-Abbassi, has recently bragged that Iran has already ‘‘spied out’’ the 29 sites ‘‘in America and the West’’ which they (presumably with help from Hezbollah, the world’s most professional terrorist organization) are prepared to attack in order to ‘‘destroy Anglo-Saxon civilization.’’ One can bet with reasonable confidence that some of these sites involve oil production and distribution. In 1979 there was a serious attempted coup in Saudi Arabia. Much of what the outside world saw was the seizure by Islamist fanatics of the Great Mosque in Mecca, but the effort was more widespread. Even if one is optimistic that democracy and the rule of law will spread in the Greater Middle East and that this will lead after a time to more peaceful and stable societies there, it is undeniable that there is substantial risk that for some time the region will be characterized by chaotic change and unpredictable governmental behavior. Reform, particularly if it is hesitant, has in a number of cases in history been trumped by radical takeovers (Jacobins, Bolsheviks). There is no reason to believe that the Greater Middle East is immune from these sorts of historic risks.

Wealth transfers from oil have been used, and continue to be used, to fund terrorism and Its ideological support. Estimates of the amount spent by the Saudis in the last 30 years spreading Wahhabi beliefs throughout the world vary from $70 billion to $100 billion. Furthermore, some oil-rich families of the Greater Middle East fund terrorist groups directly. The spread of Wahhabi doctrine—fanatically hostile to Shi’ite and Suffi Muslims, Jews, Christians, women, modernity, and much else—plays a major role with respect to Islamist terrorist groups: a role similar to that played by angry German nationalism with respect to Nazism in the decades after World War I. Not all angry German nationalists became Nazis and not all those schooled in Wahhabi beliefs become terrorists, but in each case the broader doctrine of hatred has provided the soil in which the particular totalitarian movement has grown. Whether in lectures in the madrassas of Pakistan, in textbooks printed by Wahhabis for Indonesian schoolchildren, or on bookshelves of mosques in the U.S., the hatred spread by Wahhabis and funded by oil is evident and influential. On all points except allegiance to the Saudi state Wahhabi and al Qaeda beliefs are essentially the same. In this there is another rough parallel to the 1930’s—between Wahhabis’ attitudes toward al Qaeda and like-minded Salafist Jihadi groups today and Stalinists’ attitude toward Trotskyites some sixty years ago (although there are of course important differences between Stalin’s Soviet Union and today’s Saudi Arabia). The only disagreement between Stalinists and Trotskyites was on the question whether allegiance to a single state was the proper course or whether free-lance killing of enemies was permitted. Stalinist hatred of Trotskyites and their free-lancing didn’t signify disagreement about underlying objectives, only tactics, and Wahhabi/Saudi cooperation with us in the fight against al Qaeda doesn’t indicate fundamental disagreement between Wahhabis and al Qaeda on, e.g., their common genocidal fanaticism about Shia, Jews, and homosexuals. So Wahhabi teaching basically spreads al Qaeda ideology

The current account deficits for the U.S. and a number of other countries create risks ranging from major world economic disruption to deepening poverty, and could be substantially reduced by reducing oil imports. The U.S. in borrows about $2 billion every calendar day from the world’s financial markets to finance the gap between what we produce and what we consume. The single largest category of imports is the approximately $1 billion per working day, or $250 billion a year, borrowed to import oil. The accumulating debt increases the risk of a flight from the dollar or major increases in interest rates. Any such development could have major negative economic consequences for both the U.S. and its trading partners.

If such deficits are to be reduced, however, say by domestic production of substitutes for petroleum, this should be based on recognition of real economic value such as waste cleanup, soil replenishment, or other tangible benefits.

Government policies with respect to the vehicular transportation market:

Encourage improved vehicle mileage, using technology now in production The following three technologies are available to improve vehicle mileage substantially. [We should] take advantage of diesels’ substantial mileage advantage over gasoline-fueled internal combustion engines. Heavy penetration of diesels into the private vehicle market in Europe is one major reason why the average fleet mileage of such new vehicles is 42 miles per gallon in Europe and only 24 mpg in the U.S. Although the U.S. has, since 1981, increased vehicle weight by 24% and horsepower by 93%, it has actually somewhat lost ground with respect to mileage over that near-quarter century. In the 12 years from 1975 to 1987, however, the U.S. improved the mileage of new vehicles from 15 to 26 mpg.

Hybrid gasoline-electric vehicles now on the market generally show substantial fuel savings over their conventional counterparts.

Light-weight carbon composite construction. Constructing vehicles with inexpensive versions of the carbon fiber composites that have been used for years for aircraft construction can substantially reduce vehicle weight and increase fuel efficiency while at the same time making the vehicle considerably safer than with current construction materials.

Encourage the commercialization of alternative transportation fuels that can be available soon, are compatible with existing infrastructure, and can be derived from waste or otherwise produced cheaply. Biomass (cellulosic) ethanol The use of ethanol produced from corn in the U.S. and sugar cane in Brazil has given birth to the commercialization of an alternative fuel that is coming to show substantial promise, particularly as new feedstocks are developed.


Senator DORGAN. I think a dispassionate observer living off of our planet and looking at this planet and seeing that we use what, 84 million barrels a day that we extract from the planet. One-fourth of that is used in this little spot called the United States. A substantial portion of the inventory exists in another part of the globe covered with sand. And they would look at this part of the country or this part of the planet, the United States, needing a quarter of it, 60 percent of what it needs coming from off our shores, particularly from troubled parts of the world and they would say, well, how could they not have been so concerned about that that they would have taken dramatic action, because tonight or tomorrow or next Saturday or God forbid next month or whenever, a terrorist action or some other cataclysmic action could just simply throw this country’s economy flat on its back. It will affect every job. It will affect everything we do. And so when the chairman and Senator Bingaman have a hearing that talks about the goal of energy independence, this is not just some ethereal notion about what would be nice to do. This is really an urgent priority for a country. The question is, do we have the luxury of deciding whether to try to strive for independence specifically of oil or is this an urgent requirement for this country at this point?

Mr. WOOLSEY. I think it’s extremely urgent, Senator Dorgan. I think that this could collapse on us at any time. There was almost a coup in Saudi Arabia in 1979. And Iran could cut us off for a while for its own reasons of pursuing its nuclear program, terrorist attacks in a number of places. This is something that we need to fix and we need to fix now. In my view reducing our dependence on conventional oil is an integral part of the war on terror. I believe we will be in this war for decades, much like the Cold War, and that one key to winning it is to cease funding the ideology of hatred that our enemies feed upon. We borrow $250 billion/year to import oil—an increasing share it will come from the Middle East as the years go on. The Saudis then, to take one example, provide around $4 billion/year to the Wahhabis who then use much of it to run, e.g., madrassas in Pakistan and elsewhere that teach this hatred. Indeed one could say that, other than the Civil War, this is the only war the U.S. has fought in which we pay for both sides.

Nuclear energy may be one good way to produce electricity, especially because it does not emit global warming gases. But it is largely irrelevant to the question oil addiction because only 2-3% of our electricity comes from oil.



I have studied the White House Fact Sheet on the Advanced Energy Initiative with some puzzlement. The stated purpose is ‘‘to help break America’s dependence on foreign source of energy.’’ This can only mean oil: the U.S. does not import coal, uranium is in surplus, and natural gas imports are small (although Administration policy is to increase them by several-fold, creating a new dependence). However, the section on ‘‘diversifying energy sources’’ is all about electricity, which has almost nothing to do with oil. This confusion between oil and electricity, conflating them both into ‘‘energy,’’ bemuses energy experts the world over who assume that responsible U.S. officials must understand these fundamentals; yet such jumbled formulations persist.

I don’t think we need to spend more (although more well-targeted energy R&D would certainly be valuable), but we definitely need to spend smarter. The lion’s share of both current and new energy R&D funding is going, as usual, to the least promising but most politically powerful technologies—coal and nuclear—that can by their nature contribute virtually nothing to getting America off oil. This and the ill-conceived subsidies in last year’s Energy Policy Act don’t simply divert Federal funds from best buys; they also leverage untold sums of private capital into non-solutions. These mistaken Federal energy priorities in the 1980s, in practical effect, created today’s oil crisis because of what they didn’t do and what they dissuaded private investors from doing. Today’s repetition of this policy error is setting the stage for another, longer, worse oil crisis.

The Strategic Petroleum Reserve (SPR) is useful, though I’ve heard disturbing recent reports about its ability to sustain maximum output, and I remain concerned about the vulnerability of its centralized facilities to disruption by hurricanes or terrorism.

I’d prefer greater emphasis on distributed stockpiles of refined products rather than crude oil, rotated as needed to guard against deterioration. The oil system used to have much larger product stockpiles close to its customers than it does today, because bean-counters have wrung out inventory as mere carrying-cost overhead, sapping its societal value for private gain.

Europe is generally ahead in this regard; many governments require market actors, both suppliers and major customers, to carry refined-product stocks that are already in the form and at the place where they’d be needed by final customers. With so many simultaneous disruptions in the world oil system, and strong incentive to cause more, I think the case for such distributed product stocks (duly protected against attack) is now unassailable. So is the even more powerful case for efficient use of oil. This gives the most bounce per buck by stretching existing stocks and buying more time to mend what’s broken or improvise substitutes.

The grave security problems I identified 27 years ago in our Nation’s energy infrastructure should have been fixed, but instead, most of them have been worsened. These self-inflicted vulnerabilities are an attractive nuisance for Al Qa’eda, and we should at least stop multiplying them. Current Federal energy policy perpetuates American’s expanding oil dependence, because it ranges from modest support (advanced biofuels) to inaction (natural-gas and electric efficiency) to opposition (seriously improving light-vehicle efficiency). The resulting oil dependence funds both sides of the war, impugns U.S. moral standing, has bailed out the nearly empty Iranian and Saudi treasuries, has created (in effect) such leaders as Ahmadinejad, Chavez, El-Bashir, and Putin, systematically distorts foreign policy and postures, poisons foreign attitudes, weakens competitiveness, and enhances vulnerability and fragility.

Meanwhile, Federal policy strongly favors over centralized system architecture, as seen in Katrina’s damage and in bigger, more frequent regional blackouts. It creates terrorist targets, from LNG and nuclear facilities to Iraqi infrastructure. Its centerpiece, ANWR drilling, would create an all-American Strait of Hormuz in a world that already has one such chokepoint too many. It lavishly supports expansion of nuclear power and reverses the Ford-Cheney reprocessing moratorium, thus worsening proliferation. On top of that, it sacrifices what’s left of the nonproliferation regime, painfully built over a half century, to support the nuclear bureaucracy that makes 3% of India’s electricity, while ignoring the vastly greater and cheaper potential to improve the peaceful 97%.

The Japanese have been on a steady course to conserve energy and reduce their dependence on imported energy while their GDP continues to grow. They’re turning down their thermostats and shutting off their idling car and truck engines to save energy. Opinion polls show that more than 75% of Japan’s citizens view energy conservation as a personal responsibility. Many are willing to shell out extra cash for efficient appliances and office equipment. Do you think that Americans can gain energy independence without feeling a little pain? Are American consumers willing to accept some financial pain for energy independence gain? I think most Americans hunger for leaders who engage their patriotic personal involvement in a great national project to shed our oil burden. Winning the Oil Endgame showed how to do this through entrepreneurship and innovation rather than through cost, pain, or sacrifice. But those interested—and there are many— in changing careless habits should be welcomed too, because markets work better when they’re mindful. Just please don’t confuse efficiency (which is widely called ‘‘conservation’’ in the Pacific Northwest but nowhere else in the country) with curtailment (which is what many Americans from other regions think ‘‘conservation’’ means): they should be discussed separately and in unambiguous language, not interchangeably.

We should worry not only about already attacked Saudi oil choke points like Abqaiq and Ras Tanura but also about the all-American Strait of Hormuz proposed in Alaska.

DOE policy that did not undercut DOD’s mission would shift from brittle energy architecture, the next major failure inevitable, to more efficient, resilient, diverse, dispersed, renewable systems that make it impossible. It would avoid electricity investments that are meant to prevent blackouts, but instead make them bigger and more frequent. It would stop creating attractive nuisances for terrorists from vulnerable LNG and nuclear facilities to over-centralized U.S. and Iraqi electric infrastructure. And it would acknowledge the nuclear proliferation correctly identified by the President as the gravest threat to national security is driven largely by nuclear power.

Energy independence is not only about oil. Many sources of LNG raise similar concerns of security, dependence, site vulnerability, and cost. I do not expect that Iran and Russia would be more reliable, long-run sources of gas than Persian Gulf states are today of oil.

The key to wringing twice the work from our oil is tripled efficiency, cars, trucks, and planes, integrating the best 2004 technologies for ultra-light steels or composites, better aerodynamics in tires, and advanced propulsion can do this with 2-year paybacks.

I believe the shortest path to an energy policy that enhances security and prosperity is free-market economics, letting all ways to save or produce energy compete fairly at honest prices, no matter which kind they are, what technology they use, where they are, how big they are, or who owns them.

Bigger power plants sending bigger bulk power flows through longer transmission lines tend to make the grid less stable (id.). Leading engineering analysts of electric-grid theory are reaching similar conclusions, e.g., http://www.ece.wisc.edu/~dobson/PAPERS/carrerasHICSS03.pdf

Gasoline taxes are a pretty good signal to drive less if you have alternatives, but they are a very weak signal to buy an efficient car because that price signal in the fuel is diluted many fold by the other costs of buying and running a car and then heavily discounted at consumer discount rates. So consumers really only look at the first 2 or 3 years of fuel savings. CAFE standards, are pretty well gridlocked. We found that a more effective method would be to take each size class of light vehicles and institute forward a feebate system. That is a combination of a fee and a rebate, so that within each size class separately, the less efficient vehicles pay a fee according to how inefficient they are and the more efficient vehicles get a rebate paid for by the fees according to how efficient they are. So you would have an incentive within each size class to buy a more efficient vehicle, but no incentive to buy a different size than you wanted.

I would say tripled efficiency, cars, trucks, and planes, and a diverse dispersed, decentralized resilient, invulnerable electric system [are best]. If you are asking on a policy level, I would say size and revenue-neutral feebates and encouraging the States to reward gas and electric utilities for cutting your bill, not for selling you more energy. That would free up half the gas in the country and a lot of that could be substituted back for oil.

Senator MURKOWSKI. Mr. Lovins, in looking at your testimony as well as some of the backup documentation that you have provided with it, you are arguing against producing more oil from Alaska basically from the security perspective. And I keep reading with interest the same phrase you have used, the all-American Strait of Hormuz, as well as the reference to this world’s biggest chapstick. We realize that it is a long silver thread running through the State providing a valuable resource to the country. Do you have the same issues in terms of security for a natural gas pipeline to meet that energy need for this country that you have indicated in your comments about oil?

Mr. LOVINS. I think many of the details would differ. The gas pipeline would not be hot and would not have to be above ground and very exposed. You would not have the coal restart problem that a hot oil pipeline does. That is the source of the chapstick comment. I would call your attention to the more recent article originally entitled ‘‘The Alaskan Threat to National Energy Security’’ that’s cited toward the end of footnote 5 in my prepared testimony, and it was published just weeks before 9/11 with a title change by the editor. And the annotated version of that, which is cited, details that the security issues I described have not gone away. You’ll find the scariest episode in the 30-year record you refer to, Senator, is not the drunk taking a potshot at the line. Rather it is the disgruntled engineer who was very fortunately caught months before blowing up three critical and very hard to fix parts of the line with 14 bombs he had already built and cold weather tested. And he was caught only because he involved someone else in the plot who turned him in. He was not aiming to hurt the United States. He intended to make money in the oil future’s market. But as Mr. Woolsey and I wrote in the Christian Science Monitor in 2002, that guy was an amiable bungler compared to our al Qaeda adversaries.

Basing Federal policy on sound market principles and ‘‘best buys first’’ would be a propitious change from recent tendencies. So would a clear focus on oil, rather than confusing oil with electricity.

Senator Domenici: How do you respond to those, like me, who say that an economy run entirely without oil by the 2040’s is quite difficult to believe?

Lovins: First, I would respectfully invite you to examine the analysis we presented on 20 September 2004 in Winning the Oil Endgame and its Technical Annexes, all posted free at www.oilendgame.com. Our scenario achieves half its oil displacement by substituting saved natural gas and advanced biofuels for oil.

Most R&D has been and still is misallocated to favored technologies that are already mature or show no hope of becoming competitive. The money seems to be allocated more by pork-barrel politics than by risk-adjusted public return. Second, total federal energy R&D is far too small for its actual and rhetorical priority.

I’d add that the Federal government is doing far too much to distort private markets, deliberately causing huge misallocations of private capital. I’d love to see a thorough, transparent, and defensible compilation of Federal energy subsidies—

My Institute did the first thorough analysis of Federal energy subsidies, summarized in ‘‘Hiding the True Costs of Energy Sources,’’

Nuclear power in FY84 got 34% of the subsidies (excluding Price-Anderson) but delivered 1.9% of the energy; each of its subsidy dollars delivered 1/80th as much as a dollar of subsidies to renewables and efficiency. The latest analyses by the top contemporary independent scholar in this field, Doug Koplow (www.earthtrack.net), confirm that Federal energy subsidies are still large and probably even more distortive. There is little point developing new technologies if such massive market interventions favoring rivals continue to suppress their adoption.

Alaska’s onshore methane hydrates may bubble out of the thawing tundra on their own, causing a global climate disaster. I haven’t seen a convincing argument that onshore or offshore methane hydrates can be extracted without a substantial risk of major uncontrolled releases of methane. Lacking such grounds for confidence that the operation could avoid making our planet more like Venus, I hope the hydrates stay right where they are. And we don’t need them if, more cheaply, we use energy in a way that saves money.

Regrettably, current Federal policy has only limited relevance to eliminating oil dependence, and much of its content that is relevant is unhelpful. Most of the public policy initiatives that are both relevant and helpful are coming from the States.

Coal gasification is a feasible but costly way to produce gas or liquids. It is quite carbon-intensive as normally conceived. All carbon-sequestered ‘‘clean coal’’ innovations are in my view a 4th-best approach, after energy efficiency, renewables, and combined-heat-and-power (co-, tri-, and polygeneration), so I’d give it a lower overall priority in energy R&D than it currently has. Having a lot of coal is in my view a less important reason to use it than whether it can provide energy services at least cost. R&D should be driven by cost-effectiveness, not resource bases.

Coal and nuclear generation of electricity have virtually nothing to do with displacing oil, which is the nub of the Nation’s energy security problem.

If it’s possible to stop mandating and subsidizing sprawl, or otherwise to advance the smart-growth agenda, that too would bear huge longer-term dividends by reducing vehicle-miles traveled.

Electricity reforms can save almost no oil, they are extremely important to creating a resilient national energy system—including the ability to get power to filling stations so customers can pump gas!

(The industry has stupidly redesigned its pumpheads without the old handcrank socket; as in Florida recently, a prolonged power outage therefore grounds the surface transportation system too.)

Senator FEINSTEIN. The Bush administration found that 99% of flexible-fuel vehicles on the road today never use a drop of E-85 ethanol. As a result, the administration found that this loophole actually increases America’s oil dependence by 14 to 17 billion gallons of gasoline per year. As I understand it, Ford uses its fuel economy credits for these flex-fuel vehicles to lower fuel economy standards for the rest of the automobiles so that we are not really doing much to increase vehicle economy. What would you suggest we do to really increase fuel economy? I had a bill just to bring SUVs over 10 years up to the fuel economy of the sedans which the fleet number, as you said, is 27 miles per gallon as opposed to the SUV at 20 miles per gallon. And it went down because there is really no support for that. Detroit opposes it very strongly. What do we do that Detroit could support to really rapidly increase fuel economy standards?

Ms. CISCHKE. Well, I think we have to be very sensitive to what the consumers want to buy. Right now in the auto industry, over 30 vehicles get better than 30 miles per gallon in fuel economy, yet it accounts for less than 5% of our sales. So we have a challenge in terms of putting vehicles out there that nobody wants to buy. And that is a real problem for all the auto companies. When you mentioned the E-85 usage, this is kind of a chicken and the egg type situation. We need the fuel in order to make the vehicles run on E-85, but the fuel is not going to be there unless there is enough volume of vehicles. We have to address to what our consumers are demanding and we have got to find a way to make them want to buy more fuel-efficient vehicles.

Mr. VERRASTRO. Two things. The first point is that the flexible-fuel vehicles run on about 10 to 15% ethanol, not 85%. E-85 is a totally different bird. There are evaporative emissions issues in terms of the environment. There are also massive transportation and distribution issues. You cannot put it in a pipeline. In our country on the coast, we have the greatest demand for fuels. If you grow corn or use cellulosic ethanol and then transport it to the coast and you cannot put it in pipelines, you have to find a different distribution system. Clearly in Europe, the oil companies have taken to incorporate biodiesel and biomass and other fuels at their retail stations. It is the cost of a tank and a pump. But this transition to move to E-85, I am not sure that that is the answer. Brazil, as Jim Woolsey just said, is kind of the poster child for ethanol. And over the weekend, they reduced the content of the ethanol in their fuel from 25 percent to 20 percent because they cannot produce enough of it. So to think that we are going to grow our way crop-wise into an energy solution, I think is far reaching.


STATEMENT OF THE AMERICAN PETROLEUM INSTITUTE. API is a national trade association representing more than 400 companies involved in all aspects of the oil and natural gas industry, including exploration and production, refining, marketing and transportation, as well as the service companies that support our industry.

We live in an energy interdependent world, and complete energy independence is probably unachievable and certainly undesirable.

We can no longer afford to place off limits vast areas of the Eastern Gulf of Mexico, off the Atlantic and Pacific coasts, and offshore Alaska. Similarly, we cannot afford to deny Americans consumers the benefits that will come from opening the Arctic National Wildlife Refuge and from improving and expediting approval processes for developing the substantial resources on federal, multi-use lands in the West. In fact, we do have an abundance of competitive domestic oil and gas resources in the U.S. According to the latest published estimates, there are more than 131 billion barrels of oil and more than 1000 TCF of natural gas remaining to be discovered in the United States.

Much of these oil and gas resources—78% of the remaining to be discovered oil and 62% of the gas—are expected to be found beneath federal lands and coastal waters. Natural gas, which fuels our economy—not only heating and cooling homes and businesses but also generating electricity. It is used by a wide array of industries—fertilizer and agriculture; food packaging; pulp and paper; rubber; cement; glass; aluminum, iron and steel; and chemicals and plastics. And, natural gas is an essential feedstock for many of the products used in our daily lives—clothing, carpets, sports equipment, pharmaceuticals and medical equipment, computers, and auto parts.

Unlike oil, natural gas imports in the form of liquefied natural gas (LNG) are limited by the lack of import terminals. There are only 5 operating in the United States. A number of additional terminals have been proposed but many have run into not-in-my-backyard opponents and complex permitting requirements.

There is a misperception by some about the time and costs involved in any transition to the next generation of fuels. Consider what would be involved in replacing the dominant role of oil with a substitute like hydrogen or solar power. Most experts agree that such a transition would require dramatic advances in technology and massive capital investments—and take several decades to accomplish, if at all.

Based on various studies, the energy savings from corn-based ethanol are moderate—3 to 20%—because production from corn requires significant energy input. And, judging from this past year, ethanol is higher-priced than gasoline and, measured on a BTU basis, considerably more expensive. In addition, some have estimated that the total amount of ethanol that could be produced by converting the entire 2005 U.S. corn crop into ethanol would be about 31.1 billion gallons—an amount equal to just 22.2 percent of U.S. gasoline consumption last year.

We hope that people will better understand that, in today’s global energy marketplace, U.S. ‘‘energy independence’’ is impossible. We hope they come to see that, instead, ‘‘energy interdependence’’ is essential. We hope consumers will come to recognize that their interests are best served when we can source fuels from multiple providers located both in the U.S. and throughout the world. Sourcing flexibility is one of our most powerful energy security tools. We also want others to understand that we can operate only where governments permit us to do so.

AMORY LOVINS. We are particularly concerned that FERC is making America’s power system more prone to regional blackouts by continuing to push larger, longer bulk power flows through more and bigger transmission lines, rather than allowing or, preferably, requiring fair competition (whether market or administrative) by demand-side and distributed options so as to achieve a least-cost system solution

FERC is the last bastion of central planning in the Federal Government, and last year gained new authority to site supply-side resources, or override state and local objections to them, without having to consider cheaper alternatives, ranging from end-use efficiency and demand response to micropower. This will probably result in further construction of vulnerable, terrorist-magnet, and uneconomic LNG terminals, with potentially catastrophic consequences for nearby communities and increased financial risks for investors.

Another desirable focus for FERC’s attention would be ensuring that as utilities automate distribution systems, their topology should be made bidirectional, so that distribution shifts from a tree structure (distributing centrally generated electrons to dispersed customers) to a web structure (gracefully handling power flows any which way). This is largely a State regulatory matter, but Federal standards would probably help, and State attention to this issue could be encouraged in many ways.

Still another area for FERC reform would remove the transmission roadblock facing wind developers, especially in and near the Dakotas. In essence, the incumbent lignite operators in that region aren’t allowing fair transmission access, and FERC has not yet intervened to promote it, so a cheap, climate-safe, domestic resource exceeding 300 GWe just on tribal lands in the Dakotas remains virtually unexploited. Broadly, I think State Commissions should follow Texas’s example (under then PUCT Chairman Pat Woods’ and Governor Bush’s leadership) of allowing distributed generators to ‘‘plug and play’’ freely: if the inverter meets IEEE 1547, UL, and local building code requirements, no other approval or procedure should be required. Federal policy should encourage this outcome uniformly, and should encourage State Commissions to remove artificial constraints as to feed-in generators’ unit size, the symmetry of TOU vs. flat-rate payments vs. charges, and other accounting arrangements to ensure a level playing-field for distributed resources. Federal policy should give no preference to big over small or to supply-side over demand-side resources; all should compete fairly as a central principle of Federal energy policy.

Hybrid and fuel-cell cars are worthy, and plug-in hybrids may be, but they’d all work better and cost less if combined with an apparently missing element: advanced materials that eliminate half the car’s weight and fuel use, improve its safety, and doesn’t raise its production cost.

I hope the Congress will note that much of the recent troubles at NREL—not a place one should be trying to divert or demoralize during an energy crisis—arose from ~15% of its budget’s being, in effect, hijacked by Congressional earmarks. If NREL is to do its job and retain its excellent people, such raids must cease.

I’m gratified by the Pentagon’s increasing focus on radically reducing fuel-logistics footprint in theater: if seriously implemented, this could create the industrial base that can lead the civilian vehicle industries off oil, just as DoD research transformed the civilian economy by inventing for military purposes the Internet, GPS, and the jetengine and chipmaking industries—all foundations of America’s and especially California’s economy.

It’s vital that in all countries, biofuels be done in an environmentally and socially sustainable way—unlike some recent destruction of tropical forests to make way for palm-oil plantations to produce biodiesel. Even more important is to share and greatly accelerate developing countries’ adoption of advanced end-use efficiency in all sectors.

The most comprehensive threat to national energy security today is national energy policy. This Committee should reexamine its approach, and stop energy policy from undercutting DoD’s mission.

Roughly 4-8% of U.S. gasoline or 2-4% of crude oil could be quickly saved by:

  • reducing speed limits for all non-Class 8 vehicles to 60 mph in zones now above this limit under Federal (and if possible State) jurisdiction
  • changing EPA rules so that HOV lanes and preferential parking now available only to Alternative Fuel Vehicles are also available to hybrid and all-electric vehicles (EPA’s inaction on this is frustrating many States that wish to make this change)
  • giving so-called double-tax-credit to State and local nonprofit vehicle buyers such as public safety agencies for adopting high-efficiency hybrids
  • authorizing all citizens to deduct mass transit costs on IRS Schedule A
  • providing for universal approval of ‘‘parking cash-out’’ (as long practiced in Southern California) and perhaps requiring it for large employers
  • for a few years, extending the Federal tax credit for AFVs, hybrids, and all-electric vehicles to far more than the current 60,000 per manufacturer
  • eliminating continuing loopholes in CAFE rules
  • clarifying that NHTSA does have authority to extend to cars its 23 August 2005 proposed decision to base future light-truck CAFE rules on size, not weight
  • Roughly 12-18% of diesel fuel could be rapidly saved by heavy-truck reforms proposed in Winning the Oil Endgame and in our memo for Senator

Roughly 4-6% of gasoline and diesel fuel could be promptly saved by:

  • immediately switching all Federal civilian (and nontactical military) road vehicle procurement to the top 5%, or at worst 10%, of efficiency in their subclass
  • saving ~3% through proper tire inflation, including rental and commercial fleets as well as individual owners
  • exerting Federal pressure to improve traffic-light timing on major urban streets and to speed adoption of electronic tolling (with careful controls to protect personal privacy) and of ‘‘urban box’’ congestion charges
  • encouraging proper engine tuning and air-filter replacement, as well as EPA’s other gas mileage tips
  • having NHTSA clarify that manufacturers and sellers of hybrid cars are allowed to advise buyers how to drive them for optimal efficiency (thus reversing the false impression, spread chiefly by Consumer’s Reports, that hybrids are inherently much less efficient than they actually are if properly driven)
  • DoD initiatives to make military-platform (and -facility) energy efficiency a high priority—in doctrine, requirements-writing, acquisition, design pedagogy and practice, operations, and reward systems—should be strongly encouraged.
  • targeted military science and technology investments in ultralight materials and their low-cost manufacturing could create the advanced-materials industrial cluster that is the most important single manufacturing innovation for getting off oil.
  • Greater investment in improved road traffic management infrastructure in order to reduce congestion and save fuel.

The integrated approach aims at producing clear and quantifiable reductions in CO2 through a range of options (e.g. vehicle technology, alternative fuels, taxation, eco-driving, gear shift indicators, consumer information and labeling, consumer behavior and congestion avoidance).

Hydrogen fuel cell vehicles are seen by Ford and the industry as a long-term alternative transportation solution. They are clean and efficient, with zero tailpipe emissions, and use a renewable fuel source. Although FCVs are in development today, much work remains to meet the functionality, durability, and affordability demands of automotive consumers.

Automobile fuel economy has been mandated via the CAFE program for about 30 years. Most industry and government experts agree that the program has not been an effective way to reduce petroleum consumption, and that it has had dramatic competitive and economic impacts. For one thing, it takes a long time for the vehicle fleet to turn over. New CAFE standards take time to implement, and their effects take even more time to make their way through the vehicle fleet. Another problem is that higher fuel economy simply makes it cheaper for people to drive more. Vehicle miles traveled have increased substantially over the life of the CAFE program and tend to overwhelm improvements in fuel economy. Addressing our dependence on foreign oil must include taking steps to reduce vehicle miles traveled.

Automakers are already producing more than 100 models that achieve 30 mpg or more on the highway; however, the consumer demand for these vehicle models is low.

Coal gasification, followed by synthesis to liquids that are suitable for transportation fuels, is a known technology. These are large plants with substantial investment, and their long-term commercial operation must be certain. A related technology, recovery of remote natural gas with synthesis to liquid fuels (Gas-to-Liquids, GTL) is now considered economical in select cases, and several large GTL plants are now planned for Qatar, with diesel fuel to be supplied to Europe, where diesel demand now exceeds supply. Gasification of coal (Coal-to-Liquids, CTL) adds a substantial processing step compared with natural gas as the resource. So the overall efficiency of CTL will be less than GTL, with a corresponding increase in CO2 as a byproduct. The GTL path will be an issue for total CO2 emissions unless carbon capture and sequestration is implemented with the GTL plant. Carbon capture and sequestration trial projects are proceeding with good success.

At the end of this year, Ford will have already put nearly 2,000,000 Flexible Fuel Vehicles on the nation’s roads. However, applying technologies too broadly, too fast, and too soon (even those already on other vehicle lines in the fleet) can result in poor performance and ultimately customer rejection of promising technologies. Ford’s typical engineering practices require that new technologies be phased into production over several years such that there is a cycle of manufacturing and customer service experience in the field. In the case of E85 FFVs, this experience has been limited due to the lack of fuel availability. Moreover, because ethanol is a unique fuel with unique properties, these vehicles require unique hardware and engineering. For example, fuel tanks with low permeation characteristics are required. It also requires a special fuel pump and fuel lines to deliver the fuel to the engine. Unique injectors introduce the fuel into the engine where special calibrations programmed into the on-board computer determine how much ethanol is in the fuel and how best to set spark timing and fuel flow to ensure the engine operates properly and meets emission standards on all ethanol and gasoline mixtures. Because there is more than one fuel calibration within an FFV, costly development and certification testing is doubled. Many of the FFV parts and processes are patented by Ford and are the result of innovative ideas by our best engineers, and we’re proud of them. The bottom line . . . making an FFV is a significant investment for auto manufacturers.


We’ve been saying for decades that we need to decrease our dependence on foreign supplies of energy. The first major calls for action followed the oil embargo of 1973. In that year, we imported approximately 28% of the oil we consumed. A restriction of supply by a group of hostile nations caused prices to increase by an average of 40% during that embargo and introduced a new weapon in global conflict. In 2005, we imported roughly 59% of the oil we consumed. This trend of increased dependence is a troublesome one.

Wyoming produces roughly 10% of the nation’s primary energy, with far less than 1% of the nation’s people. We have oil, natural gas, uranium, and wind resources to name a few.

We also have coal—a resource with enormous potential for increasing our energy independence. Coal is economical and abundant. It constitutes roughly half of the electricity generated in the United States. Advancement of coal gasification technologies, carbon sequestration, and improved mining techniques reduce many of the environmental concerns that people have had in the past. And greater use of cheaper Western coal makes this fuel a much more attractive choice going forward. We have coal here in the United States and we need to use it. We continue to develop wind, we have hydroelectric dams, and we will hopefully see the construction of new nuclear plants in the near future.

We consume roughly two thirds of the oil we use in the transportation sector. Because of its large share of consumption, policy changes affecting the transportation sector can have a significant impact on reducing foreign dependence. Increased mileage standards, elimination of boutique fuels, lowered speed limits, and greater use of alternative fuels are just a few of the many ideas that have been advanced to decrease the transportation sector’s consumption of oil. I contend that coal can make a difference in the transportation sector as well. Wyoming recently announced plans to construct a coal-to-liquids plant. The National Mining Association believes that continued use of this technology could replace as much as 2 million barrels per day of oil and 5 trillion cubic feet of natural gas per day by 2025.

I believe that the bill introduced by the Chairman and Ranking Member for lease sales in the Gulf of Mexico’s Area 181 is exactly the sort of thing we need in the short term.


It is time we stopped treating foreign oil dependence as another abstract statistic whose consequence is far removed from Americans’ daily lives. The United States is going to have to face the reality that we must break our foreign energy dependence or risk losing our autonomy. Our nation’s energy dependence is undeniably one of the greatest threats to our national security and our freedom.

By 2025 it is estimated that nearly 75% of America’s oil supply will be imported. Also consider that two-thirds of the world’s proven oil reserves are in the Middle East and that terrorists have identified oil as a strategic vulnerability—increasing attacks against oil infrastructure worldwide. One can just imagine what would happen if OPEC, which currently accounts for well over 50% of our oil supplies, shut off the oil spigot. Beyond the national security implications, oil dependence also carries serious economic consequences. The total economic penalty of our oil dependence, including loss of jobs, output, and tax revenue, is estimated to exceed $300 billion annually.

One facet of this plan to reach 2.5 million barrels per day of oil savings is to promote the development and use of advanced and alternative fuel efficient vehicles. Key pieces include tax credit incentives for advanced technology motor vehicles, expansion of the consumer tax credits for advanced vehicles, loan guarantees and grants for hybrid vehicle projects, and a new federal commitment to hybrid vehicle technologies and materials. The national fuel savings generated by this bill will be immense, but if we want to free ourselves from foreign oil dependence, we must produce more fuel here at home.

I believe we need a national energy policy that increases availability of flex fuel vehicles, invests heavily in E-85 infrastructure, includes a sugar-to-ethanol program, and sets a national mandate for ethanol that matches our energy independence ambitions.



I have been a long time supporter of ethanol and biodiesel. I know that I would rather get fuel from farmers in Missouri and across the country than import it from foreign countries. I believe that the greatest provision of the energy bill was the Renewable Fuels Standard which mandated the use of ethanol in our nation’s fuel supply. The amount of biofuels to be mixed with gasoline sold in the United States is mandated at increases annually up to 7.5 billion gallons by 2012. Since the passage of the bill, 34 new ethanol plants are under construction, with 8 existing U.S. plants being expanded. And, there are more than 150 new plants in the planning stages. This construction and investment in farming will create thousands of new jobs while making us less reliant on foreign sources of oil.

While the ideas of hydrogen vehicles are exciting—they are such a long way off.



It is clear that the United States needs to reduce our dependence on foreign sources of energy. We particularly need to reduce our reliance on oil from unstable regions of the world whose values and priorities are often in conflict with America’s initiatives and place in the world. Last year, U.S. net imports equaled 59% of our demand, with 41% of our total imports came from OPEC countries, which is 27% of the total U.S. consumption.

Dependence to this extent can determine our national security, our economic strength, and our foreign policy. In order to make necessary changes, we have to be realistic about what is possible in the near term, but certainly we have to look with real energy and enthusiasm toward the long-term. Making energy self-sufficiency the immediate goal would deny the reality of this situation and only invite discouragement and failure. This would be akin to putting all of our resources in the hopes of finding an elusive cure for a disease at the expense of taking important steps to treat and alleviate the symptoms in the interim. To that end, I have said on a number of occasions that while I support the advancement of science technology to reduce our dependence on foreign energy sources, I think we must also build a bridge to that age by accessing the oil and gas resources available in our country and we must reasonably and responsibly conserve our energy.

For example, I believe we should have acted on ANWAR a long time ago. The majority of the Senate believes that ANWAR brings us closer to achieving energy security and I would venture to say that not a single member of this body believes that continuing to block ANWAR strengthens our energy security. Blocking progress is not a substitute for substantive policy.

In my first year in the Senate, President Nixon set a goal of energy self-sufficiency by 1980. I do not know if any of you remember that. Since that time, successive administrations, scores of members of Congress from both parties, including me, have set similar goals. I believe that energy self-sufficiency is attainable, but I do not believe it is in the short term. Nonetheless, we must pursue it as a goal in my opinion vigorously.


ROBERT MENENDEZ, U.S. SENATOR from NEW JERSEY. I was not at all pleased to see the budget that came out less than a week later. A budget that did not take the serious steps towards the new technologies that we need to end that addiction. A budget that shortchanges vital energy efficiency efforts such as the weatherization program that helps reduce energy costs for our low-income families and seniors. A budget that cuts funding for some promising forms of renewable energy, cuts funding for research into vehicle technologies, and even cuts funding for a program designed to make the federal government more energy efficient. Quite simply, the president has failed to match his rhetoric with real action. OCS Even more disheartening is the continuing efforts of the administration to dig and drill their way out of dependence on foreign oil. Shortly after the budget was released, the Interior Department’s Minerals Management service unveiled their new proposed 5-year plan for the outer continental shelf, which included a plan to begin drilling off the Virginia coast. This is flatly unacceptable for my own state of New Jersey, because the ocean knows no borders, and an environmental catastrophe off the coast of Virginia would not stay confined to the waters of Virginia. The area to be leased is less than 75 miles off the southern tip of New Jersey, more than close enough to put our beaches and vital tourism industry at serious risk. The plan also shows that instead of seriously confronting our addiction, the administration would rather simply tap another vein.

CAFÉ standards. As many of our witnesses have said in the past, and will be expressing again today, the most effective way to confront our energy problems is through efficiency. We have made excellent strides in the past few decades to make our country more energy efficient, and one of the keys to that success has been Corporate Average Fuel Economy, or CAFE, standards. According to statistics compiled by the Rocky Mountain Institute, between 1977 and 1985 our oil use went down 17% and our oil imports went down 50%, and the biggest factor in that drop was the 7.6 mile-per-gallon improvement in new domestic cars over that time. But in the 20 years since then, our overall vehicle fleet has actually become less efficient. The CAFE standard for passenger cars has been stagnant for the past two decades, and the standard for light trucks is barely 1 mile-per-gallon higher than it was in 1987. Increasing fuel economy standards should be part of the energy independence solution and part of our national energy policy.

Another federal efficiency program that is part of the solution is Weatherization, which provides grants to states to allow them to make the homes of low-income families and seniors more energy efficient. This has a two-fold benefit. First, it lowers energy costs, which makes it easier for people to pay their heating or cooling bills, and reduces the amount of money that we need to spend on essential assistance programs like LIHEAP. Second, it reduces our overall energy needs. According to the Oak Ridge National Laboratory, every $1 invested in the weatherization program returns $3.81 in energy and non-energy benefits, and because of the program the country saves the equivalent of 15 million barrels of oil each year. And yet, despite this track record of success, the administration has proposed cutting the program by 33%, denying over 30,000 families—families that are on the lowest rung of the economic ladder and most desperately need help—the ability to get their homes weatherized.

We also need to shift from fossil fuels to renewable sources of energy. My own state of New Jersey has become a national leader in this field, recently enacting new incentives for the use of solar, wind, and other renewable energies, and moving towards enacting a robust renewable portfolio standard—20% by 2020. The state has put its money where its mouth is, giving over $43 million of incentives for new solar power installations over the past five years.


Senator THOMAS. I think we have a real opportunity to convert coal, which is our largest fossil resource, to diesel fuel, for example. We can do that very shortly. What do we do in the next 4 of 5 years?

Mr. WOOLSEY. Well, Senator, cellulosic ethanol is now coming on the market, Iogen in Canada, backed by Shell oil, diesel from waste products such as turkey carcasses from a Canagra slaughter house—— Senator THOMAS. Tell me about the volume of that, however. Oil from turkey carcasses obviously is not going to amount to much of anything.



LISA MURKOWSKI, U.S. SENATOR FROM ALASKA. For years we’ve heard that energy independence is a pure pipe dream given that America—not counting ANWR—has just over 20 billion barrels of proven conventional oil reserves (1.6% of known world reserves), while the Middle East has 57% of the world’s known supply of conventional oil and nearly as much gas. But with rises in both oil and natural gas prices because of the exhaustion of much of the cheap ‘‘conventional oil and gas,’’ because of sharp increases in demand for energy from developing nations and because of environmental fears, we may well be moving into a period when unconventional fuels and new technology, including alternative fuels, can increase our domestic energy production and dare we say permit energy ‘‘independence.’’ The Pentagon last year began seriously funding research efforts to promote bio and synthetic fuel development to meet military needs. The Energy Policy Act of last summer provided research funding, tax incentives and policy changes to spur biofuels like ethanol, and hybrid vehicle sales to cut consumption; increased oil and gas recovery from heavy oil deposits and by use of carbon dioxide to produce more fuel from aging fields.

JIM BUNNING, U.S. SENATOR FROM KENTUCKY. I think that with energy prices at these highs, we can see clearly that our national security is threatened by our continued reliance on imported oil. I think one of our top priorities should be on our most abundant domestic fossil fuel: Coal. New technologies will make burning coal both cleaner and more efficient. We are even developing coal-to-liquid technology that can create a synthetic transportation fuel from coal. American coal reserves will be our best tool to overcome our reliance on Middle East oil. We also have other domestic energy reserves, like ANWR and the Outer-Continental Shelf. I believe we can tap these oil and natural gas reserves in an environmentally sound way. I also think we need to develop our renewable fuels, especially stimulating biodiesel and ethanol production. Many of you have focused on biodiesel and transportation fuels, but coal is our most abundant domestic fossil fuel and accounts for half of our electric generation. I believe we can lessen our dependence on imports by using clean coal power and nuclear energy to replace the imported natural gas and oil that currently goes to producing electricity.





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Uncertainty about oil supply makes a strategy for peak oil important. Government Accountability Office, 2007

[This is the only official U.S. Peak Oil government document I know of besides Hirsch’s Peak Oil mitigation for the DOE in 2005. Though peak oil, energy security, and lowering oil use has been discussed over 40 years in House and Senate hearings, Congress is too dysfunctional to do anything, and the public could care less, buying SUVs every time the gas price drops a little. Other reasons why nothing is happening are discussed in “why political and economic leaders deny peak oil and climate change“. Not that anything can be done, except to prepare to go back to the Age of Wood, but you’ll have to do that on your own. Alice Friedemann at www.energyskeptic.com]

GAO. 2007. Uncertainty about future oil supply makes it important to develop a strategy for A Peak and decline in oil production. U.S. Government Accountability Office. 82 pages

Key Points

The U.S. economy depends heavily on oil, particularly in the transportation sector. World oil production has been running at near capacity to meet demand, pushing prices upward. Concerns about meeting increasing demand with finite resources have renewed interest in an old question: How long can the oil supply expand before reaching a maximum level of production—a peak—from which it can only decline?

In the United States, alternative fuels and transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear. There is no coordinated federal strategy for reducing uncertainty about the peak’s timing or mitigating its consequences.

Peaking risks for reasons other than geological

The potential for disruptions in key oil-producing regions of the world, such as the Middle East, and the yearly threat of hurricanes in the Gulf of Mexico have also exerted upward pressure on oil prices.

Without sustained high oil prices, efforts to develop and adopt alternatives may fall by the wayside.

Political Conditions Create Uncertainties about Oil Exploration and Production

In many countries with proven reserves, oil production could be shut down by wars, strikes, and other political events, thus reducing the flow of oil to the world market. If these events occurred repeatedly, or in many different locations, they could constrain exploration and production, resulting in a peak despite the existence of proven oil reserves. Countries with medium or high levels of political risk contained 63 percent of proven worldwide oil reserves, on the basis of Oil and Gas Journal estimates of oil reserves: also O&G:

Investment Climate Creates Uncertainty about Oil Exploration and Production

85% of the world’s proven oil reserves are in countries with medium-to-high investment risk or where foreign investment is prohibited

Foreign investment in the oil sector could be necessary to bring oil to the world market. but many countries have restricted foreign investment. Lack of investment could hasten a peak in oil production because the proper infrastructure might not be available to find and produce oil when needed, and because technical expertise may be lacking. lack of technical expertise could lead to less sophisticated drilling techniques that actually reduce the ability to recover oil in more complex reservoirs

National oil companies may have additional motivations for producing oil, other than meeting consumer demand. For instance, some countries use some profits from national companies to support domestic socioeconomic development, rather than focusing on continued development of oil exploration and production for worldwide consumption. Given the amount of oil controlled by national oil companies, these types of actions have the potential to result in oil production that is not optimized to respond to increases in the demand for oil.

OPEC countries might decide to limit current production to increase prices or to preserve oil and its revenue for future generations.

The rate of decline after a peak is an important consideration because a decline that is more abrupt will likely have more adverse economic consequences than a decline that is less abrupt.

In the United States, alternative transportation technologies have limited potential to mitigate the consequences of a peak and decline in oil production, at least in the near term, because they face many challenges that will take time and effort to overcome. If the peak and decline in oil production occur before these technologies are advanced enough to substantially offset the decline, the consequences could be severe.

The price of soybean oil is not expected to decrease significantly in the future owing to competing demands from the food industry and from soap and detergent manufacturers. These competing demands, as well as the limited land available for the production of feedstocks, also are projected to limit biodiesel’s capacity for large-volume production, according to DOE and USDA. As a result, experts believe that the total production capacity of biodiesel is ultimately limited compared with other alternative fuels.

Ultimately, however, the consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks. Because the decline would be neither temporary nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient quantities at comparable costs. Furthermore, because oil production could decline even more each year following a peak, the amount that would have to be replaced by alternatives could also increase year by year.

Consumer actions could help mitigate the consequences of a near-term peak and decline in oil production through demand-reducing behaviors such as carpooling; teleworking; and “eco-driving” measures, such as proper tire inflation and slower driving speeds. Clearly these energy savings come at some cost of convenience and productivity, and limited research has been done to estimate potential fuel savings associated with such efforts. However, DOE estimates that drivers could improve fuel economy between 7 and 23 percent by not exceeding speeds of 60 miles per hour, and IEA estimates that teleworking could reduce total fuel consumption in the U.S. and Canadian transportation sectors combined by between 1 and 4 percent, depending on whether teleworking is undertaken for 2 days per week or the full 5-day week, respectively.

Uncertainty about future oil prices can be a barrier to investment in risky alternative fuels projects. Recent polling data also indicate that consumers’ interest in fuel efficiency tends to increase as gasoline prices rise and decrease when gasoline prices fall.

Federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate its consequences are spread across multiple agencies and generally are not focused explicitly on peak oil.

For example, efforts that could be used to reduce uncertainty about the timing of a peak include USGS activities to estimate oil resources and DOE efforts to monitor current supply and demand conditions in global oil markets and to make future projections. Similarly, DOE, the Department of Transportation (DOT), and the U.S. Department of Agriculture (USDA) all have programs and activities that oversee or promote alternative transportation technologies that could mitigate the consequences of a peak.

However, officials of key agencies we spoke with acknowledge that their efforts—with the exception of some studies—are not specifically designed to address peak oil. Federally sponsored studies we reviewed have expressed a growing concern over the potential for a peak and officials from key agencies have identified some options for addressing this issue. For example, DOE and USGS officials told us that developing better information about worldwide demand and supply and improving global estimates for nonconventional oil resources and oil in “frontier” regions that have yet to be fully explored could help prepare for a peak in oil production by reducing uncertainty about its timing. Agency officials also said that, in the event of an imminent peak, they could step up efforts to mitigate the consequences by, for example, further encouraging development and adoption of alternative fuels and advanced vehicle technologies.

However, according to DOE, there is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues, either within DOE or between DOE and other key agencies. While the consequences of a peak would be felt globally, the United States, as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable. Therefore, to better prepare the United States for a peak and decline in oil production, we are recommending that the Secretary of Energy take the lead, in coordination with other relevant federal agencies, to establish a peak oil strategy. Such a strategy should include efforts to reduce uncertainty about the timing of a peak in oil production and provide timely advice to Congress about cost-effective measures to mitigate the potential consequences of a peak. In commenting on a draft of the report, the Departments of Energy and the Interior generally agreed with the report and recommendations.

Federal agency efforts that could contribute to reducing uncertainty about the timing of a peak in oil production or mitigating its consequences are spread across multiple agencies and are generally not focused explicitly on peak oil issues. Federal agency-sponsored studies have expressed a growing concern over the potential for a peak, and officials from key agencies have identified options for reducing the uncertainty about the timing of a peak in oil production and mitigating its consequences. However, there is no strategy for coordinating or prioritizing such efforts.

Agencies Have Options to Reduce Uncertainty and Mitigate Consequences, but Lack a Coordinated Strategy

In addition to these actions reducing the uncertainty about the timing of a peak, agency officials also told us that they could take additional steps to mitigate the consequences of a peak. For example, DOE officials reported that they could expand their efforts to encourage the development of alternative fuels and advanced vehicle technologies. These efforts could be expanded by conducting more demonstrations of new technologies, facilitating greater information sharing among key industry players, and increasing cost share opportunities with industry for research and development. Agency officials told us such efforts can be essential to developing and encouraging the technologies. Although there are many options to reduce the uncertainty about the timing of a peak or to mitigate its potential consequences, according to DOE, there is no formal strategy to coordinate and prioritize federal programs and activities dealing with peak oil issues—either within DOE or between DOE and other key agencies.

[Extracts from this study below]

Corn ethanol production is technically feasible, it is more expensive to produce than gasoline and will require costly investments in infrastructure, such as pipelines and storage tanks, before it can become widely available as a primary fuel. Key alternative technologies currently supply the equivalent of only about 1 percent of U.S. consumption of petroleum products, and the Department of Energy (DOE) projects that even by 2015, they could displace only the equivalent of 4% of projected U.S. annual consumption.

In such circumstances, an imminent peak and sharp decline in oil production could cause a worldwide recession.

If the peak is delayed, however, these technologies have a greater potential to mitigate the consequences. DOE projects that the technologies could displace up to 34% of U.S. consumption in the 2025 through 2030 time frame, if the challenges are met. The level of effort dedicated to overcoming challenges will depend in part on sustained high oil prices to encourage sufficient investment in and demand for alternatives.

Since 1983, world consumption of petroleum products has grown fairly steadily. The Department of Energy’s (DOE) Energy Information Administration (EIA) states in a 2006 report that world consumption of petroleum had reached 84 million barrels per day in 2005.1 EIA also projects that world oil consumption will continue to grow and will reach 118 million barrels per day in 2030.2 About 43% of this growth in oil consumption will come from the non-Organization for Economic Co-operation and Development Asian countries, including China and India, but the United States will remain the world’s largest oil consumer. In 2005, the United States accounted for just under 25% of world oil consumption.

World oil production has been running at near capacity in recent years to meet rising consumption, putting upward pressure on oil prices. The potential for disruptions in key oil-producing regions of the world, such as the Middle East, and the yearly threat of hurricanes in the Gulf of Mexico have also exerted upward pressure on oil prices. These conditions have renewed interest in a long-standing question: Will oil supply continue to expand to meet growing demand, or will we soon reach a maximum possible level of production—a peak—beyond which oil supply can only decline?

According to a 2005 report prepared for DOE, without timely preparation, a reduction in world oil production could cause transportation fuel shortages that would translate into significant economic hardship.3

In this context, we (1) examined when oil production could peak, (2) assessed the potential for transportation technologies to mitigate the consequences of a peak and decline in oil production, and (3) examined federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate the consequences.

More than 60% of world oil reserves, on the basis of Oil and Gas Journal estimates, are in countries where relatively unstable political conditions could constrain oil exploration and production.

In the United States, alternative transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear. For example:

  • Ethanol from corn is more costly to produce than gasoline, in part because of the high cost of the corn feedstock. Even if ethanol were to become more cost-competitive with gasoline, it could not become widely available without costly investments in infrastructure, including pipelines, storage tanks, and filling stations.
  • Advanced vehicle technologies that could increase mileage or use different fuels are generally more costly than conventional technologies and have not been widely adopted. For example, hybrid electric vehicles can cost from $2,000 to $3,500 more to purchase than comparable conventional vehicles and currently constitute about 1 percent of new vehicle registrations in the United States.
  • Hydrogen fuel cell vehicles are significantly more costly than conventional vehicles to produce. Specifically, the hydrogen fuel cell stack needed to power a vehicle currently costs about $35,000 to produce, in comparison with a conventional gas engine, which costs $2,000 to $3,000.

The level of effort dedicated to overcoming challenges to alternative technologies will depend in part on the price of oil; without sustained high oil prices, efforts to develop and adopt alternatives may fall by the wayside.

Political Conditions Create Uncertainties about Oil Exploration and Production

In many countries with proven reserves, oil production could be shut down by wars, strikes, and other political events, thus reducing the flow of oil to the world market. If these events occurred repeatedly, or in many different locations, they could constrain exploration and production, resulting in a peak despite the existence of proven oil reserves. For example, according to a news account, crude oil output in Iraq dropped from 3.0 million barrels per day before the 1990 gulf war to about 2.0 million barrels per day in 2006, and a labor strike in the Venezuelan oil sector led to a drop in exports to the United States of 1.2 million barrels. Although these were isolated and temporary oil supply disruptions, if enough similar events occurred with sufficient frequency, the overall impact could constrain production capacity, thus making it impossible for supply to expand along with demand for oil. Using a measure of political risk that assesses the likelihood that events such as civil wars, coups, and labor strikes will occur in a magnitude sufficient to reduce a country’s gross domestic product (GDP) growth rate over the next 5 years,16 we found that four countries—Iran, Iraq, Nigeria, and Venezuela—that possess proven oil reserves greater than 10 billion barrels (high reserves) also face high levels of political risk.

These four countries contain almost one-third of worldwide oil reserves. Countries with medium or high levels of political risk contained 63 percent of proven worldwide oil reserves, on the basis of Oil and Gas Journal estimates of oil reserves. (See fig. 7.)17


16 The political risk measure comes from Global Insight’s Global Risk Service. Global Insight is a worldwide consulting firm headquartered in Massachusetts. The Global Risk Service political risk score is a summary of probabilities that different political events, such as civil war, will reduce GDP growth rates. The subjective probabilities are assessed by country analysts at Global Insight, on the basis of a wide range of information, and are reviewed by a team to ensure consistency across countries. The measures are revised quarterly; the measure we used comes from the second quarter of 2006.

Investment Climate Creates Uncertainty about Oil Exploration and Production

Foreign investment in the oil sector could be necessary to bring oil to the world market, according to studies we reviewed and experts we consulted, but many countries have restricted foreign investment. Lack of investment could hasten a peak in oil production because the proper infrastructure might not be available to find and produce oil when needed, and because technical expertise may be lacking. The important role foreign investment plays in oil production is illustrated in Kazakhstan, where the National Commission on Energy Policy found that opening the energy sector to foreign investment in the early 1990s led to a doubling in oil production between 1998 and 2002.

Direct foreign investment in Venezuela was strongly correlated with oil production in that country, and that when foreign investment declined between 2001 and 2004, oil production also declined.


Industry officials told us that lack of technical expertise could lead to less sophisticated drilling techniques that actually reduce the ability to recover oil in more complex reservoirs. For example, according to industry officials, some Russian wells have difficulties with high water cut—that is, a high ratio of water to oil—making oil difficult to get out of the ground at current prices. This water cut problem stems from not using technically advanced methods when the wells were initially drilled.

We have previously reported that the Venezuelan national oil company, PDVSA, lost technical expertise when it fired thousands of employees following a strike in 2002 and 2003.

In contrast, other national oil companies, such as Saudi Aramco, are widely perceived to possess considerable technical expertise. According to our analysis, 85% of the world’s proven oil reserves are in countries with medium-to-high investment risk or where foreign investment is prohibited, on the basis of Oil and Gas Journal estimates of oil reserves. (See fig. 8.) For example, over one-third of the world’s proven oil reserves lie in only five countries—China, Iran, Iraq, Nigeria, and Venezuela—all of which have a high likelihood of seeing a worsening investment climate. Three countries with large oil reserves—Saudi Arabia, Kuwait, and Mexico—prohibit foreign investment in the oil sector, and most major oil-producing countries have some type of restrictions on foreign investment. Furthermore, some countries that previously allowed foreign investment, such as Russia and Venezuela, appear to be reasserting state control over the oil sector, according to DOE.

GAO, Oil and Gas Development: Increased Permitting Activity Has Lessened BLM’s Ability to Meet Its Environmental Protection Responsibilities, GAO-05-418 (Washington, D.C.: June 17, 2005). 1

According to IEA, infrastructure investment in exploration and production would need to total about $2.25 trillion from 2004 through 2030. This investment will be needed to expand supply capacity and to replace existing and future supply facilities that will be closed during the projection period. National Commission on Energy Policy, Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges (December 2004), available at www.energycommission.org. 21GAO, Energy Security: Issues Related to Potential Reductions in Venezuelan Oil Production, GAO-06-668 (Washington, D.C.: June 27, 2006). Figure 8: Worldwide Proven Oil Reserves, by Investment Risk

Foreign investment in the oil sector also may be limited because national oil companies control the supply.

National oil companies may have additional motivations for producing oil, other than meeting consumer demand. For instance, some countries use some profits from national companies to support domestic socioeconomic development, rather than focusing on continued development of oil exploration and production for worldwide consumption. Given the amount of oil controlled by national oil companies, these types of actions have the potential to result in oil production that is not optimized to respond to increases in the demand for oil.

OPEC countries might decide to limit current production to increase prices or to preserve oil and its revenue for future generations.

Uncertainty about the rate of decline is illustrated in studies that estimate the timing of a peak. IEA, for example, estimates that this decline will range somewhere between 5 percent and 11 percent annually. Other studies assume the rate of decline in production after a peak will be the same as the rise in production that occurred before the peak. Another methodology, employed by EIA, assumes that the resulting decline will actually be faster than the rise in production that occurred before the peak. The rate of decline after a peak is an important consideration because a decline that is more abrupt will likely have more adverse economic consequences than a decline that is less abrupt.

Alternative Transportation Technologies Face Challenges in Mitigating the Consequences of the Peak and Decline

In the United States, alternative transportation technologies have limited potential to mitigate the consequences of a peak and decline in oil production, at least in the near term, because they face many challenges that will take time and effort to overcome. If the peak and decline in oil production occur before these technologies are advanced enough to substantially offset the decline, the consequences could be severe. If the peak occurs in the more distant future, however, alternative technologies have a greater potential to mitigate the consequences.

Development and Adoption of Technologies to Displace Oil Will Take Time and Effort

Development and widespread adoption of the 7 alternative fuels and advanced vehicle technologies we examined will take time, and significant challenges will have to be overcome, according to DOE. These technologies include ethanol, biodiesel, biomass gas-to-liquid, coal gas-to-liquid, natural gas and natural gas vehicles, advanced vehicle technologies, and hydrogen fuel cell vehicles.

Widespread use of ethanol would require a turnover in the vehicle fleet because most current vehicle engines cannot effectively burn ethanol in high concentrations.

Biodiesel is a renewable fuel that has similar properties to petroleum diesel but can be produced from vegetable oils or animal fats. It is currently used in small quantities in the United States, but it is not cost-competitive with gasoline or diesel. The cost of biodiesel feedstocks— which in the United States largely consist of soybean oil—are the largest component of production costs. The price of soybean oil is not expected to decrease significantly in the future owing to competing demands from the food industry and from soap and detergent manufacturers. These competing demands, as well as the limited land available for the production of feedstocks, also are projected to limit biodiesel’s capacity for large-volume production, according to DOE and USDA. As a result, experts believe that the total production capacity of biodiesel is ultimately limited compared with other alternative fuels.

Biomass gas-to-liquid (biomass GTL) is a fuel produced from biomass feedstocks by gasifying the feedstocks into an intermediary product, referred to as syngas, before converting it into a diesel-like fuel. This fuel is not commercially produced, and a number of technological and economic challenges would need to be overcome for commercial viability. These challenges include identifying biomass feedstocks that are suitable for efficient conversion to a syngas and developing effective methods for preparing the biomass for conversion into a syngas. Furthermore, DOE researchers report that significant work remains to successfully gasify biomass feedstocks on a large enough scale to demonstrate commercial viability. In the absence of these developments, DOE reported that the costs of producing biomass GTL will be very high and significant uncertainty surrounding its ultimate commercial feasibility will exist.

Coal gas-to-liquid (coal GTL) is a fuel produced by gasifying coal into a syngas before being converted into a diesel-like fuel. This fuel is commercially produced outside the United States, but none of the production facilities are considered profitable. DOE reported that high capital investments—both in money and time—deter the commercial development of coal GTL in the United States. Specifically, DOE estimates that construction of a coal GTL conversion plant could cost up to $3.5 billion and would require at least 5 to 6 years to construct. Furthermore, potential investors are deterred from this investment because of the risks associated with the lengthy, uncertain, and costly regulatory process required to build such a facility. An expert at DOE also expressed concern that the infrastructure required to produce or transport coal may be insufficient. For example, the rail network for transporting western coal is already operating at full capacity and, owing to safety and environmental concerns, there is significant uncertainty about the feasibility of expanding the production capabilities of eastern coal mines. Coal GTL production also faces serious environmental concerns because of the carbon dioxide emitted during production.

Natural gas is an alternative fuel that can be used as either a compressed natural gas or a liquefied natural gas. Demand for natural gas in other markets, such as home heating and energy generation, presents substantial competitive risks to the natural gas vehicle industry. Production costs for natural gas vehicles are also higher than for conventional vehicles because of the incremental cost associated with a high-pressure natural gas tank. For example, light-duty natural gas vehicles can cost $1,500 to $6,000 more than comparable conventional vehicles, while heavy-duty natural gas vehicles cost $30,000 to $50,000 more than comparable conventional vehicles. Regarding infrastructure, retrofitting refueling stations so that they can accommodate natural gas could cost from $100,000 to $1 million per station, depending on the size,

Hydrogen Fuel Cell Vehicles

A hydrogen fuel cell vehicle is powered by the electricity produced from an electrochemical reaction between hydrogen from a hydrogen containing fuel and oxygen from the air. In the United States, these vehicles are still in the development stage, and making these vehicles commercially feasible presents a number of challenges. While a conventional gas engine costs $2,000 to $3,000 to produce, the stack of hydrogen fuel cells needed to power a vehicle costs $35,000 to produce. Furthermore, DOE researchers have yet to develop a method for feasibly storing hydrogen in a vehicle that allows a range of at least 300 miles before refueling. Fuel cell vehicles also are not yet able to last for 120,000 miles, which DOE believes to be the target for commercial viability. In addition, developing an infrastructure for distributing hydrogen—either through pipelines or through trucking—is expected to be complicated, costly, and time-consuming. Delivering hydrogen from a central source requires a large amount of energy and is considered costly and technically challenging. DOE has determined that decentralized production of hydrogen directly at filling stations could be a more viable approach than centralized production in some cases, but a cost-effective mechanism for converting energy sources into hydrogen at a filling station has yet to be developed.


Consequences Could Be Severe If Alternative Technologies Are Not Available

Because development and widespread adoption of technologies to displace oil will take time and effort, an imminent peak and sharp decline in oil production could have severe consequences. The technologies we examined currently supply the equivalent of only about 1% of U.S. annual consumption of petroleum products, and DOE projects that even under optimistic scenarios, these technologies could displace only the equivalent of about 4% of annual projected U.S. consumption by around 2015. If the decline in oil production exceeded the ability of alternative technologies to displace oil, energy consumption would be constricted, and as consumers competed for increasingly scarce oil resources, oil prices would sharply increase. In this respect, the consequences could initially resemble those of past oil supply shocks, which have been associated with significant economic damage. For example, disruptions in oil supply associated with the Arab oil embargo of 1973-74 and the Iranian Revolution of 1978-79 caused unprecedented increases in oil prices and were associated with worldwide recessions. In addition, a number of studies we reviewed indicate that most of the U.S. recessions in the post-World War II era were preceded by oil supply shocks and the associated sudden rise in oil prices.

Ultimately, however, the consequences of a peak and permanent decline in oil production could be even more prolonged and severe than those of past oil supply shocks. Because the decline would be neither temporary nor reversible, the effects would continue until alternative transportation technologies to displace oil became available in sufficient quantities at comparable costs. Furthermore, because oil production could decline even more each year following a peak, the amount that would have to be replaced by alternatives could also increase year by year.

Consumer actions could help mitigate the consequences of a near-term peak and decline in oil production through demand-reducing behaviors such as carpooling; teleworking; and “eco-driving” measures, such as proper tire inflation and slower driving speeds. Clearly these energy savings come at some cost of convenience and productivity, and limited research has been done to estimate potential fuel savings associated with such efforts. However, DOE estimates that drivers could improve fuel economy between 7 and 23 percent by not exceeding speeds of 60 miles per hour, and IEA estimates that teleworking could reduce total fuel consumption in the U.S. and Canadian transportation sectors combined by between 1 and 4 percent, depending on whether teleworking is undertaken for 2 days per week or the full 5-day week, respectively.

Uncertainty about future oil prices can be a barrier to investment in risky alternative fuels projects. Recent polling data also indicate that consumers’ interest in fuel efficiency tends to increase as gasoline prices rise and decrease when gasoline prices fall.

Federal Agencies Do Not Have a Coordinated Strategy to Address Peak Oil Issues

Federal agency efforts that could contribute to reducing uncertainty about the timing of a peak in oil production or mitigating its consequences are spread across multiple agencies and are generally not focused explicitly on peak oil issues. Federal agency-sponsored studies have expressed a growing concern over the potential for a peak, and officials from key agencies have identified options for reducing the uncertainty about the timing of a peak in oil production and mitigating its consequences. However, there is no strategy for coordinating or prioritizing such efforts.

Agencies Have Options to Reduce Uncertainty and Mitigate Consequences, but Lack a Coordinated Strategy

In addition to these actions reducing the uncertainty about the timing of a peak, agency officials also told us that they could take additional steps to mitigate the consequences of a peak. For example, DOE officials reported that they could expand their efforts to encourage the development of alternative fuels and advanced vehicle technologies. These efforts could be expanded by conducting more demonstrations of new technologies, facilitating greater information sharing among key industry players, and increasing cost share opportunities with industry for research and development. Agency officials told us such efforts can be essential to developing and encouraging the technologies. Although there are many options to reduce the uncertainty about the timing of a peak or to mitigate its potential consequences, according to DOE, there is no formal strategy to coordinate and prioritize federal programs and activities dealing with peak oil issues—either within DOE or between DOE and other key agencies.


The prospect of a peak in oil production presents problems of global proportion whose consequences will depend critically on our preparedness. The consequences would be most dire if a peak occurred soon, without warning, and were followed by a sharp decline in oil production because alternative energy sources, particularly for transportation, are not yet available in large quantities. Such a peak would require sharp reductions in oil consumption, and the competition for increasingly scarce energy would drive up prices, possibly to unprecedented levels, causing severe economic damage. While these consequences would be felt globally, the United States, as the largest consumer of oil and one of the nation’s most heavily dependent on oil for transportation, may be especially vulnerable among the industrialized nations of the world. Automotive fuel efficiency could be improved. Alternatives will require large investments, and in some cases, major changes in infrastructure or break-through technological advances. In the past, the private sector has responded to higher oil prices by investing in alternatives, but investment is determined largely by price expectations, so unless high oil prices are sustained, we cannot expect private investment in alternatives to continue at current levels.

While public and private responses to an anticipated peak could mitigate the consequences significantly, federal agencies currently have no coordinated or well-defined strategy either to reduce uncertainty about the timing of a peak or to mitigate its consequences. This lack of a strategy makes it difficult to gauge the appropriate level of effort or resources to commit to alternatives to oil and puts the nation unnecessarily at risk.

For investment risk in the oil and gas sectors, the factors are: investment/maintenance risk, input risk, production risk, sales risk, and revenue/repatriation risk. We compared political and investment risk with Oil and Gas Journal oil reserves estimates.

Oil sands are deposits of bitumen, a thick, sticky form of crude oil, which is so heavy and viscous that it will not flow unless heated or diluted with lighter hydrocarbons. It must be rigorously treated to convert it into an upgraded crude oil before it can be used by refineries to produce gasoline and diesel fuels. While conventional crude flows naturally or is pumped from the ground, oil sands must be mined or recovered “in-situ,” or in place. During oil sands mining, approximately 2 tons of oil sands must be dug up, moved, and processed to produce 1 barrel of oil. During in-situ recovery, heat, solvents, or gases are used to produce the oil from oil sands buried too deeply to mine. The largest deposit of oil sands globally is found in Alberta, Canada—accounting for at least 85 percent of the world’s oil sands reserves.

Heavy and extra-heavy oils are dense, viscous oils that generally require advanced production technologies, such as EOR, and substantial processing to be converted into petroleum products. Heavy and extra-heavy oil reserves occur in many regions around the world, with the Orinoco Oil Belt in Eastern Venezuela comprising almost 90% of the total extra-heavy oil in the world. In the United States, heavy oil reserves are primarily found in Alaska, California, and Wyoming, and some commercial heavy oil production is occurring domestically. The cost of producing heavy and extra-heavy oil is greater than the cost of producing conventional oil, due to, among other things, higher drilling, refining, and transporting costs. The 2005 Venezuelan extra-heavy oil production was estimated to be 600,000 barrels of oil per day and is projected to at least sustain this production rate through 2030. Development of the heavy oil resource in the United States faces environmental, economic, technical, permitting, and access-to-skilled-labor challenges.

Oil shale refers to sedimentary rock that contains solid bituminous materials that are released as petroleum-like liquids when the rock is heated. To obtain oil from oil shale, the shale must be heated and the resultant liquid must be captured, in a process referred to as “retorting.” Oil shale can be produced by mining followed by surface retorting or by in-situ retorting. The largest known oil shale deposits in the world are in the Green River Formation, which covers portions of Colorado, Utah, and Wyoming. Estimates of the oil resource in place range from 1.5 trillion to 1.8 trillion barrels, but not all of the resource is recoverable. In addition to the Green River Formation, Australia and Morocco are believed to have oil shale resources. At the present time, a RAND study reported there are economic and technical concerns associated with the development of oil shale in the United States, such that there is uncertainty regarding whether industry will ultimately invest in commercial development of the resource. Infrastructure costs for oil shale production include the following: additional electricity, water, and transportation needs. A RAND study expects a dedicated power plant for the production of oil shale to exceed $1 billion. Examples of key challenges facing the development of oil shale include the following: (1) controlling and monitoring groundwater, (2) permitting and emissions concerns associated with new power generation facilities, (3) reducing overall operating costs, (4) water consumption, and (5) land disturbance and reclamation.

Coal and Biomass Gas-to-Liquids Gas-to-liquid (GTL) alternatives include the production of liquid fuels from a variety of feedstocks, via the Fisher-Tropsch process. In the FischerTropsch process, feedstocks such as coal and biomass are converted into a syngas, before the gas is converted into a diesel-like fuel. The diesel-like fuel is low in toxicity and is virtually interchangeable with conventional diesel fuels. Although these technologies have been available in some form since the 1920s, and coal GTL was used heavily by the German military during World War II, GTL technologies are not widely used today. Currently, there is no commercial production of biomass GTL and the only commercial production of coal GTL occurs in South Africa, where the Sasol Corporation currently produces 150,000 barrels of fuel from coal per day. Extensive research and development, however, is currently under way to further develop this technology because automakers consider GTL fuels viable alternatives to oil without compromising fuel efficiency or requiring major infrastructure changes.

Potential Production • Coal. Experts project that, at most, 80,000 barrels per day could be produced by 2015 and 1.7 million barrels per day by 2030.

Greene 2006 (also wrote this study, cited in the report: David L. Greene, Janet L. Hopson, and Jai Li, Running Out Of and Into Oil: Analyzing Global Oil Depletion and Transition Through 2050, Oak Ridge National Laboratory, Department of Energy (2003)

The debate is important because a sudden, unanticipated and permanent decline in world oil production would severely damage world economies, probably for a decade or longer. In addition, the transition from oil to some other source of energy for transportation is almost certain to have important economic, environmental and security implications. A transition to more carbon intensive fossil energy sources would increase the likelihood of major climate changes. As several have pointed out, the longer- term problem of climate change depends on the world’s decision to burn or not to burn the world’s vast fossil resources of coal and unconventional oil and gas and release the carbon to the atmosphere.

Posted in Congressional Record U.S., Peak Oil | Leave a comment

African Deforestation

Nakkazi, E. May 16, 2015. Uganda’s forests dwindle as illegal settlers hollow them out. NewScientist.

Uganda’s forest cover fell from 24 per cent in 1990 to 10 per cent in 2009, and it is still falling. Every year the country loses around 88,000 hectares of forest. At this rate none will be left in a few decades. Much of it is due to illegal logging by people setting in the forests.  Migrants from other parts of the country as well as neighbouring countries started encroaching on Kibaale central forest reserves over 20 years ago. They create extensive farms and build permanent settlements; some take possession of land using fake documents.
From the outside, forest reserves looks intact. This is because the “encroachers”, as they are called locally, start clearing from the centre. “Inside, the forests have all been cleared and permanent structures – churches, schools, brick houses – are all in sight,” says Arian.

The destruction goes as far as the eye can see. In some areas freshly sown beans are sprouting.  As we walk through Ruzaire forest reserve, some 12 square kilometres of protected land in Uganda, it is as though the perpetrators have just left. An axe and a coat hang on a tree trunk, near freshly cut firewood tied in bundles. It’s indicative of a larger struggle: the dwindling forests here are being hollowed out despite efforts to preserve them. Roughly a third of the 16 forest reserves in Kibaale district have been seriously damaged and occupied by squatters. About half of those are 50 per cent occupied, says Charles Arian, a manager for Kibaale district at the National Forestry Authority (NFA).

Protecting the forest reserves isn’t easy – or safe. “Most illegal loggers work at night and rest during the day. Even then they are usually armed with traditional tools [like] spears, machetes, hoes, ready to fight back,” says Frederick Kugonza, a district forest supervisor at NFA. “Illegal loggers are armed with traditional tools like spears or machetes and ready to fight back.”

Most of the native hardwood species like African teak have been cut down.  The forest animals have moved on as the illegal loggers have moved in. There used to be elephants, wild pigs, apes, baboons, antelopes and duikers here. But little trace of them remains.

Posted in Deforestation | 1 Comment

Nuclear waste disposal in boreholes drilled into earth’s crust

[I recommending you also read my book review of Too Hot to Touch: The Problem of High-Level Nuclear Waste by William M. Alley & Rosemarie Alley. 2013. Cambridge University Press to understand how serious the problem is.  Alice Friedemann  www.energyskepticlcom ]

Cornwall, W. July 10, 2015. Deep Sleep. Boreholes drilled into Earth’s crust get a fresh look for nuclear waste disposal. Science Vol. 349: 132-135 

One of the world’s biggest radioactive headaches sits in an aging cinderblock building in the desert near Hanford, Washington, at the bottom of a pool of water that glows with an eerie blue light. The nearly 2000 half-meter-long steel cylinders are filled with highly radioactive cesium and strontium, leftover from making plutonium for nuclear weapons. The waste has been described as the most lethal single source of radiation in the United States, after the core of an active nuclear reactor. It could cause a catastrophe if the pool were breached by an unexpectedly severe earthquake, according to the U.S. Department of Energy (DOE), the waste’s owner.

For decades, the federal government has been floundering over what to do with the cylinders. They’re too hot to be easily housed with other waste. And the government’s quest to create a single permanent burial ground for all the nation’s high-level nuclear waste, from both military and civilian activities, is in disarray. U.S. high-level nuclear waste:

70,000 metric tons of civilian waste stored at 75 sites
13,000 metric tons of military waste stored at  5 sites

Now, a deceptively simple-sounding solution is emerging: Stick the cylinders in a very deep hole. The approach, known as deep borehole disposal, involves punching a 43-centimeter-wide hole 5 kilometers into hard rock in Earth’s crust. Engineers would then fill the deepest 2 kilometers with waste canisters, plug up the rest with concrete and clay, and leave the waste to quietly decay.

The idea has been around for decades, but not long ago scientists had all but abandoned it. Over the past 5 years, however, as improved drilling technologies converged with the political and technical woes bedeviling other nuclear waste solutions, boreholes have regained their allure. DOE has gone from spending almost nothing on borehole research to planning a full-scale field test, costing at least $80 million. And earlier this year U.S. Energy Secretary Ernest Moniz gave boreholes a dash of publicity during a major speech, mentioning them as a promising way to deal with the cesium and strontium waste at DOE’s Hanford Site nuclear complex.

Boreholes have “been plan B and just missed the boat for years,” says nuclear engineer Michael Driscoll, a retired professor from the Massachusetts Institute of Technology (MIT) in Cambridge and one of the concept’s leading advocates. “Maybe now is the time.

Many nuclear waste veterans, however, are skeptical. The technical challenges are daunting, they argue, and boreholes won’t end political opposition to building new nuclear waste facilities. “The borehole thing to me is a red herring,” says attorney Geoff Fettus of the Natural Resources Defense Council (NRDC) in Washington, D.C., which supports underground disposal in a shallower mine, but has sued DOE over now abandoned plans to bury the waste inside Nevada’s Yucca Mountain.

Still, even some doubters say that given the current deadlock over nuclear waste, boreholes deserve a second look, at least for those troublesome cylinders at Hanford.

“If we can move forward with disposing of some of the DOE waste, that’s a good thing,” says geoscientist Allison Macfarlane, director of the Center for International Science and Technology Policy at George Washington University in Washington, D.C., and a former chair of the U.S. Nuclear Regulatory Commission. “We have to make some progress somewhere.

IF ONE PERSON deserves credit for helping revive U.S. borehole research, it’s Driscoll, the retired MIT engineer. Now 80, he has spent more than 25 years quietly exploring the potential for depositing radioactive waste deep in granite bedrock.

Driscoll wasn’t the first to pursue the idea; since the 1950s, boreholes have vied with other nuclear waste disposal options, ranging from the improbable (shoot it into outer space or melt it into an ice sheet) to the mundane (stash it in a shallow mine). Ironically, by the time Driscoll got interested in boreholes, U.S. policymakers thought they had settled the issue. In 1987, after years of fierce debate, Congress approved legislation creating a national repository for high-level nuclear waste in a mine carved into Yucca Mountain, roughly 110 kilometers northwest of Las Vegas, Nevada. With that decision, U.S. funding for borehole research largely evaporated.

Driscoll wasn’t deterred. Boreholes, he thought, had some potential advantages over a single big facility. For example, they could spread the burden of storing waste that no one wanted, because suitable rock is found across the United States. So even as engineers began to plan the Yucca Mountain repository, Driscoll and a handful of graduate students kept churning out papers delving into borehole costs and technical feasibility.

In one scenario they explored, spent fuel rods are placed in slender canisters that are strung together like sausage links, then lowered into the hole. Even very radioactive material would be safe, advocates say, if placed in the right kind of deep rock: ancient crystalline granite with few cracks that might allow radioactive materials to seep into groundwater or reach the surface. The surrounding rock and the salty water would dissipate heat generated by the waste. And the top 3 kilometers of each hole would be plugged with a layer cake of cement, gravel, and bentonite clay, which swells when wet. The nation’s entire cache of high-level waste could fit into 700 to 950 boreholes, at a cost of $40 million per hole (not counting transportation), according to recent estimates by scientists at DOE’s Sandia National Laboratories in Albuquerque, New Mexico, who have worked with Driscoll.

Boreholes got their first big break in 2010, when the Obama administration announced that it was abandoning Yucca Mountain after years of delays and resistance from state politicians. The government began looking for other options. That year, Sandia made its first big investment: $734,000 to study how fluid and radioactive particles might behave in a borehole, and how best to seal it. In 2012, a presidential commission added its recommendation for more studies.

Soon after, Moniz became energy secretary. Moniz, a former colleague of Driscoll’s at MIT, had already heard his sales pitch about boreholes. In 2003, the two men served together on a study panel that endorsed “aggressively” studying the technology.

This past March, a White House policy shift opened the door further. Moniz announced that the Obama administration would abandon previous plans to put all high-level waste in one spot and instead would seek separate sites for disposing of commercial nuclear waste—about 85% of the total—and military waste. Moniz called some of the defense waste, including Hanford’s radioactive cylinders, “ideal candidates for deep borehole disposal.

CESIUM-137 AND STRONTIUM-90 are the hot potatoes of the nuclear waste world, packing a powerful radioactive punch in a relatively short half-life of 30 years. At Hanford, there’s barely enough to fill the back of a pickup truck. Yet it contains more than 100 million curies of radiation, roughly one-tenth the radiation in the core of a large nuclear reactor. And it produces enough heat to power more than 200 homes.
To prevent the tubes from causing trouble, they sit under about 4 meters of water in what resembles a giant swimming pool, emanating a blue glow known as Cherenkov radiation as high-energy particles slam into the water. The 1974 building housing the pool is past its 30-year life span, according to DOE’s inspector general. Bombarded by radiation, the pool’s concrete walls are significantly weakened in places. Some of the tubes have failed and been stuck inside larger containers. In a review of DOE facilities conducted after the 2011 disaster at Japan’s Fukushima Daiichi Nuclear Power Station, the department’s Office of Environmental Management concluded that the Hanford pool had the highest risk of catastrophic failure of any DOE facility, for example in a massive earthquake, according to a report from the department’s inspector general. DOE says it plans to move the pool waste into dry casks for safer storage, but it hasn’t said when.

“It’s an urgent situation and a huge safety risk,” says Tom Carpenter, executive director of the watchdog group Hanford Challenge in Seattle, Washington, which has been critical of DOE’s efforts to secure the waste.

Borehole advocates point out that the Hanford tubes are less than 7 centimeters in diameter, narrow enough to fit down a hole without extensive repackaging. All could fit into a single shaft. Other military waste could also go down a borehole, advocates add. One candidate is plutonium that DOE has extracted from dismantled nuclear weapons. Most of it is currently stored as softball-sized metal spheres at a DOE facility in Texas. In contrast to Hanford’s cesium and strontium, the plutonium is fairly cool, but extremely long-lived, with a half-life of 24,000 years. DOE is considering other options for the plutonium, including turning it into fuel for nuclear reactors or combining it with other nuclear waste and burying it. But boreholes could be an effective way to put it far out of the reach of anyone trying to lay their hands on bombmaking material.

Yet borehole disposal is not as straightforward as it might seem. The Nuclear Waste Technical Review Board, an independent panel that advises DOE, notes a litany of potential problems: No one has drilled holes this big 5 kilometers into solid rock. If a hole isn’t smooth and straight, a liner could be hard to install, and waste containers could get stuck. It’s tricky to see flaws like fractures in rock 5 kilometers down. Once waste is buried, it would be hard to get it back (an option federal regulations now require). And methods for plugging the holes haven’t been sufficiently tested. “These are all pretty daunting technical challenges,” says the board’s chair, geologist Rod Ewing, of Stanford University in Palo Alto, California.

Even if those technical problems are surmounted, boreholes might solve only a fraction of the nation’s waste problem. That’s because much of the high-level waste simply wouldn’t fit down a hole without extensive repackaging. “Due to the physical dimensions of much of the used nuclear fuel, it is not presently considered to be as good of a candidate [for borehole disposal] as the smaller waste forms,” said William Boyle, director of DOE’s Office of Used Nuclear Fuel Disposition Research and Development, in a statement to Science. Spent fuel rods from commercial power reactors, for instance, are often bundled into casks that are about 2 meters across.

Then there’s the same problem that dogged Yucca Mountain: the politics of finding a place to drill the holes. “Let’s just assume [boreholes] could work better than anybody ever imagined,” says Fettus, the NRDC attorney. “You still wouldn’t solve the nut that everyone has been unable to solve”: persuading state and local governments to take on waste from across the nation.

DESPITE THESE CHALLENGES, Sandia scientists are moving forward with a 5-year plan to drill one or more 5-kilometer-deep boreholes. Pat Brady, a Sandia geochemist helping plan the tests, is optimistic. “There’s a lot of institutional experience with drilling holes in the ground,” he says.

The drilling technology is better than ever, he says. Drillers have gained valuable experience boring deep holes into hard rock for geothermal energy, and improved rigs can more easily and accurately drill deep, straight holes. The Sandia team is currently looking for a U.S. site for the first test hole, with a plan to start drilling in the fall of 2016.

Besides seeing if they can cost-effectively drill a hole that’s deep and wide enough, they also want to test methods for determining whether the rock is solid and whether any water near the bottom of the hole is connected to shallow groundwater. Then they will lower a model waste canister down the hole to see if it gets stuck.

Other nations with nuclear waste, including China, are watching. But, for now, the United States is the only country getting ready to drill. “Nobody else has stepped forward,” says Geoff Freeze, a nuclear engineer at Sandia who is overseeing the U.S. experiment. “It kind of fell to us.”

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The Great Game and Future wars over oil: Will China and the U.S. collide?

[Below are excerpts from 18 articles about wars over oil (and other resources) written between 2003 and 2015.  If even a small nuclear war breaks out, we risk a 5+ year nuclear winter. It is long past time to implement Colin Campbell’s Rimini (oil depletion) protocol, which Richard Heinberg explains quite well in his 2006 book: “The Oil Depletion Protocol: A Plan to Avert Oil Wars, Terrorism, and Economic Collapse.” Though there’s a good chance China will take America out silently with a cyberwar rather than bombs or their Blue Navy.

Alice Friedemann  www.energyskeptic.com ]

Krauss, C., et al. July 24, 2015. China’s Global Ambitions, With Loans and Strings Attached. New York Times.

China has invested billions in Ecuador and elsewhere, using its economic clout to win diplomatic allies and secure natural resources around the world.  China has nearly $4 trillion in foreign currency reserves, which it is determined to invest overseas to earn a profit and exert its influence.

China’s growing economic power coincides with an increasingly assertive foreign policy. It is building aircraft carriers, nuclear submarines and stealth jets. In a contested sea, China is turning reefs and atolls near the southern Philippines into artificial islands, with at least one airstrip able to handle the largest military planes. The United States has challenged the move, conducting surveillance flights in the area and discussing plans to send warships.

Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans.

“The problem is we are trying to replace American imperialism with Chinese imperialism,” said Alberto Acosta, who served as President Correa’s energy minister during his first term. “The Chinese are shopping across the world, transforming their financial resources into mineral resources and investments. They come with financing, technology and technicians, but also high interest rates.”

China’s pull is strong. It is the world’s largest buyer of oil, which gives China substantial sway over petropolitics. It is also increasingly the trading partner of choice for many countries, taking the mantle from Western nations. China’s foreign direct investment — the money it spends overseas annually on land, factories and other business operations — is second only to the United States’, having passed Japan last year.

Chinese companies are at the center of a worldwide construction boom, mostly financed by Chinese banks. They are building power plants in Serbia, glass and cement factories in Ethiopia, low-income housing in Venezuela and natural gas pipelines in Uzbekistan.  China produces two million cars a month, far more than any other country. It mirrors the broader transformation of the economy from an insular agrarian society to the world’s largest manufacturer.

While the change has showered wealth on China, it has also brought new demands, like a voracious thirst for energy to power its economy. The confluence of trends has compelled China to look beyond its borders to invest those riches and to satisfy its needs.

Oil has been on the leading edge of this investment push. Energy projects and stakes have accounted for two-fifths of China’s $630 billion of overseas investments in the last decade, according to Derek Scissors, an analyst at the American Enterprise Institute.

China is playing both defense and offense. With an increased dependence on foreign oil, China’s leadership has followed the United States and other large economies by seeking to own more overseas oil fields — or at least the crude they produce — to ensure a stable supply. In recent years, state-controlled Chinese oil companies have acquired big stakes in oil operations in Cameroon, Canada, Kazakhstan, Kyrgyzstan, Iraq, Nigeria, São Tomé and Príncipe, Sudan, Uganda, the United States and Venezuela.

“When utilizing foreign resources and markets, we need to consider it from the height of national strategy,” Prime Minister Li said in 2009, when he was a vice premier. “If the resources mainly come from one country or from one place with frequent turmoil, national economic safety will be under shadow when an emergency happens.”

PetroChina and Sinopec, another state-controlled Chinese company, together pump about 25 percent of the 560,000 barrels a day produced in Ecuador. Along with taking the bulk of oil exports, the Chinese companies also collect $25 to $50 in fees from Ecuador for each barrel they pump.

China’s terms are putting countries in precarious positions.  In Ecuador, oil represents roughly 40 percent of the government’s revenue, according to the United States Energy Department. And those earnings are suddenly plunging along with the price of oil. With crude at around $50 a barrel, Ecuador doesn’t have much left to repay its loans.

To do so, Chinese authorities want to extend the length of the loans instead of writing off part of the principal. That means countries will have to hand over their natural resources for additional years, limiting their governments’ abilities to borrow money and pursue other development opportunities.

China has significant leverage to make sure borrowers pay. As the dominant manufacturer for a long list of goods, Beijing can credibly threaten to cut off shipments to countries that do not repay their loans, the senior Chinese banker said.


Gal Luft. February 3, 2004 U.S., China Are on Collision Course Over Oil. Los Angeles Times.

Gal Luft is executive director of the Institute for the Analysis of Global Security and publisher of the online publication Energy Security.

Sixty-seven years ago, oil-starved Japan embarked on an aggressive expansionary policy designed to secure its growing energy needs, which eventually led the nation into a world war. Today, another Asian power thirsts for oil: China.

While the U.S. is absorbed in fighting the war on terror, the seeds of what could be the next world war are quietly germinating. With 1.3 billion people and an economy growing at a phenomenal 8% to 10% a year, China, already a net oil importer, is growing increasingly dependent on imported oil. Last year, its auto sales grew 70% and its oil imports were up 30% from the previous year, making it the world’s No. 2 petroleum user after the U.S. By 2030, China is expected to have more cars than the U.S. and import as much oil as the U.S. does today.

Dependence on oil means dependence on the Middle East, home to 70% of the world’s proven reserves. With 60% of its oil imports coming from the Middle East, China can no longer afford to sit on the sidelines of the tumultuous region. Its way of forming a footprint in the Middle East has been through providing technology and components for weapons of mass destruction and their delivery systems to unsavory regimes in places such as Iran, Iraq and Syria. A report by the U.S.-China Economic and Security Review Commission, a group created by Congress to monitor U.S.-China relations, warned in 2002 that “this arms trafficking to these regimes presents an increasing threat to U.S. security interests in the Middle East.” The report concludes: “A key driver in China’s relations with terrorist-sponsoring governments is its dependence on foreign oil to fuel its economic development. This dependency is expected to increase over the coming decade.”

Optimists claim that the world oil market will be able to accommodate China and that, instead of conflict, China’s thirst could create mutual desire for stability in the Middle East and thus actually bring Beijing closer to the U.S.

History shows the opposite: Superpowers find it difficult to coexist while competing over scarce resources. The main bone of contention probably will revolve around China’s relations with Saudi Arabia, home to a quarter of the world’s oil. The Chinese have already supplied the Saudis with intermediate-range ballistic missiles, and they played a major role 20 years ago in a Saudi-financed Pakistani nuclear effort that may one day leave a nuclear weapon in the hands of a Taliban-type regime in Riyadh or Islamabad.

Since 9/11, a deep tension in U.S.-Saudi relations has provided the Chinese with an opportunity to win the heart of the House of Saud. The Saudis hear the voices in the U.S. denouncing Saudi Arabia as a “kernel of evil” and proposing that the U.S. seize and occupy the kingdom’s oil fields. The Saudis especially fear that if their citizens again perpetrate a terror attack in the U.S., there would be no alternative for the U.S. but to terminate its long-standing commitment to the monarchy — and perhaps even use military force against it.

The Saudis realize that to forestall such a scenario they can no longer rely solely on the U.S. to defend the regime and must diversify their security portfolio. In their search for a new patron, they might find China the most fitting and willing candidate.

The risk of Beijing’s emerging as a competitor for influence in the Middle East and a Saudi shift of allegiance are things Washington should consider as it defines its objectives and priorities in the 21st century. Without a comprehensive strategy designed to prevent China from becoming an oil consumer on a par with the U.S., a superpower collision is in the cards.

This explosive, complex region cannot accommodate two major powers competing not only over a barrel but also over the hearts, minds and allegiance of its people.


January 9, 2008. House Representative Roscoe Bartlett at conference on energy alternatives for U.S. Military.

China is buying into oil companies around the world. “When I asked the State Department why the Chinese are buying up oil around the world, they said the Chinese don’t understand the market system,” Bartlett said. “The Chinese don’t understand the market system,” he repeated as the room filled with grim chuckles.

China also is building a blue-water Navy, Bartlett said. At the rate warships are being built in China and the United States today, it won’t be too many years before China has the larger Navy, said Bartlett, who is the senior Republican on the House seapower and expeditionary forces subcommittee.

Chinese submarines are of particular concern, he said. They could give China control of the Taiwan Strait.

The Army estimates it will need $85 billion to refurbish or replace equipment being worn out or destroyed in Iraq. Don’t do it, Bartlett pleads. “A refurbished Humvee is still a Humvee” — that is, a fossil-fuel-guzzling battlefield vehicle, he said. “We should be more aggressive and innovative and actively pursue current and near-term technologies” that will reduce oil consumption. Consider these Bartlett statistics:

  1. Daily fuel consumption per deployed troop in combat has increased from 1.7 gallons during World War II to 27.3 gallons during the second Persian Gulf war.
  2. Fuel accounts for 70% of war-fighting logistics supplies by weight. 3) Convoys of tanker trucks are needed to keep combat vehicles, support vehicles and operating base generators running.
  3. Protection for fuel convoys diverts troops from combat operations. 5) Convoys create operational vulnerabilities, and reliance on convoys constrains force movement.

Ultimately, in a world with shrinking oil supplies, the United States will probably have to reconsider how it uses its military, Bartlett said.

Keeping U.S. troops in 100 countries around the world requires an extraordinary amount of energy. And it is clear to Bartlett, a medical school professor, inventor, scientist and business owner before entering Congress in 1992, that oil is running out.

“Most of the world’s authorities believe we have discovered 95 percent of the oil that will be discovered,” he said. And recent big discoveries, such as those in Latin America and the Gulf of Mexico, lie beneath miles of ocean and rock and would be enormously difficult and costly to tap.

At best, substitutes for oil, such as ethanol made from corn and other crops or liquefied coal and natural gas, can replace about one-third of today’s oil, Bartlett said.

But they have major drawbacks. The push to make ethanol from corn has already doubled the price of corn on the world market, prompting the United Nations to declare the practice of converting food crops into energy “a crime against humanity,” Bartlett said.

And converting coal to liquid fuel, as the U.S. Air Force is considering, releases twice as much global-warming carbon as burning petroleum-based fuel, he said.

Efforts to produce energy from fusion are about as likely to succeed as playing the lottery.

Making oil from tar sands and oil shale consumes more energy than it produces.

“Conservation is absolutely essential to buy us time” to develop new energy solutions, Bartlett said.



James Howard Kunstler. February 3, 2005. Kunstler on China. The Clusterfuck Nation Chronicle.

The elite clueless of the economics world had their annual jamboree in Davos, Switzerland, last week. Among other things, they heard that China’s economic output will grow to $4 trillion in 2020, from $1.6 trillion today. There was no discussion of the global oil production peak problem. Had it factored into things, there might have been some eyebrows raised about China’s prospects.

Davos jamboreener supremo Bill Gates, in his doofus-nerd “wisdom,” termed China “a change agent for the next twenty years.” What did he have in mind, one wonders? That all of China would eventually become a super-giant Redmond, Washington? A dynamic hypermega-burb full of happy motorists sipping Starbuck’s frappocinos on their way to the video game office?

Here’s the real deal: China is the last industrialized nation of the cheap energy age. Its factory production is keyed to the continuation of regular supplies of cheap oil. It has little oil of its own. In order to continue to pretend it can keep “growing” it will have to do two things. 1) embark on a military adventure to establish hegemony over oil producing regions, and 2) replace the prime customer for the avalanche of cheap “consumer” goods that its factories churn out.

We’ll take these questions in reverse order. China may have to find someone else to sell to because its American customers, the WalMart and Target shoppers, are sliding into bankruptcy after a decade-long credit card orgy. Will the Europeans throw away their own manufacturing capacity to make way for a Chinese tsunami of cheap hair dryers and blue jeans? Don’t bet on it. Will South America and Africa replace the American market? Forget it. Will China simply shift marketing to its own citizens? That brings us back to the oil question.

An industrial economy is not a perpetual motion machine. It has to run on something — in this case, oil, natural gas, and coal. If China expects to expand to meet the expectations of Davos, it will have to go adventuring for oil, in effect establish hegemonic relations with the countries that have the stuff. China is already scurrying around the globe signing contracts with nations such as Venezuela and Canada for future oil delivery — which, by the way, will come at the expense of the oil-hungry United States. China is currying favor with the nations of Middle East by doing civil engineering projects there. China’s army could walk into the oil producing nations of Central Asia. China can reach down to Indonesia with its expanding navy. In all these ventures, China will bump up against an increasingly desperate US, determined to preserve a way of life that, in the words of Veep Dick Cheney, is “non-negotiable.”

Meanwhile, China’s coal supply is mostly low-grade “soft” coal, exactly the stuff that will shove the world’s climate into phase change if it has to be used to replace missing oil. China hopes to get natural gas from its neighbor, Russia. Good luck on that. The Russians just planned a major natural gas line that will bypass China to north and go to Japan. The Russians need to be dominated by China like they need a hole in the head.

Conclusion: in the next twenty years, China is certain to contest militarily for the world’s remaining oil with what has been the prime customer for its manufacturing output. That would be America.

While the US is fraught with multiple economic difficulties — energy dependence, loss of productive activity, debt meltdown, an ongoing expensive war — China has problems that are even more fundamentally ominous — a population much more advanced in ecological overshoot, severe environmental destruction, and a water crisis that is manifesting, among other ways, in steeply falling grain harvests (on top of energy and resource dependence, unregulated banking, and the prospect of huge industrial overcapacity in the face of bankrupt customers).

Those of us Boomers, who were reading newspapers in the 1960s can recall China’s capacity for political psychosis. It’s been forty years since the “cultural revolution.” The Davos Sages seem to assume that China is a stable country. The Clusterfuck view sees it differently. As the American consumer / sprawl economy sputters, China will find itself in desperate circumstances: starved for energy, stuck with zillions of unsold coffee-makers and barn jackets, racked with unemployment, and hard-put to feed its own people.

China is going to be a “change agent,” all right, but not in the way that Bill gates expects.



Klare, M. T. May 1, 2008. The New Geopolitics of Energy. The Nation

While the day-to-day focus of US military planning remains Iraq and Afghanistan, American strategists are increasingly looking beyond these two conflicts to envision the global combat environment of the emerging period–and the world they see is one where the struggle over vital resources, rather than ideology or balance-of-power politics, dominates the martial landscape. Believing that the United States must reconfigure its doctrines and forces in order to prevail in such an environment, senior officials have taken steps to enhance strategic planning and combat capabilities.

Since 2006 the Defense Department, in its annual report Military Power of the People’s Republic of China, has equated competition over resources with conflict over Taiwan as a potential spark for a US war with China.  “Analysis of China’s military acquisitions and strategic thinking suggests Beijing is also developing capabilities for use in other contingencies, such as conflict over resources.” The report went on to suggest that the Chinese are planning to enhance their capacity for “power projection” in areas that provide them with critical raw materials, especially fossil fuels, and that such efforts would pose a significant threat to America’s security interests.

The Pentagon is also requesting funds this year for the establishment of the Africa Command (Africom), the first overseas joint command to be formed since 1983, when President Reagan created the Central Command (Centcom) to guard Persian Gulf oil. Supposedly, the new organization will focus its efforts on humanitarian aid and the “war on terror.” But in a presentation delivered at the National Defense University in February, Africom’s deputy commander, Vice Adm. Robert Moeller, said, “Africa holds growing geostrategic importance” to the United States–with oil a key factor in this equation–and that among the key challenges to US strategic interests in the region is China’s “Growing Influence in Africa.”

Russia, too, is being viewed through the lens of global resource competition. Although Russia, unlike the United States and China, does not need to import oil and natural gas to satisfy its domestic requirements, it seeks to dominate the transportation of energy, especially to Europe. This has alarmed senior White House officials, who resent restoration of Russia’s great-power status and fear that its growing control over the distribution of oil and gas in Eurasia will undercut America’s influence in the region.

In response to the Russian energy drive, the Bush Administration is undertaking countermoves. “I do intend to appoint…a special energy coordinator who could especially spend time on the Central Asian and Caspian region,” Secretary of State Condoleezza Rice informed the Senate Foreign Relations Committee in February. “It is a really important part of diplomacy.” A key job of the coordinator, she suggested, would be to encourage the establishment of oil and gas pipelines that bypass Russia, thereby diminishing its control over the regional flow of energy.

Taken together, these and like moves suggest that a momentous shift has occurred. At a time when world supplies of oil, natural gas, uranium and key industrial minerals like copper and cobalt are beginning to shrink and the demand for them is exploding, the major industrial powers are becoming more desperate in their drive to gain control over what remains of the planet’s untapped reserves  These efforts typically entail intense bidding wars for supplies on international markets–hence the record high prices for all these commodities. But they also take military form, as arms transfers and the deployment of overseas missions and bases. It is to bolster America’s advantage–and to counter similar moves by China and other resource competitors–that the Pentagon has placed resource competition at the center of its strategic planning.

Alfred Thayer Mahan Revisited

This is not the first time that American strategists have placed a high priority on the global struggle over vital resources. At the end of the nineteenth century a bold and outspoken group of military thinkers, led by naval historian and Naval War College president Alfred Thayer Mahan and his protégé, then-Assistant Secretary of the Navy Theodore Roosevelt, campaigned for a strong American Navy and the acquisition of colonies to ensure access to overseas markets and raw materials. Eventually, their views helped generate public support for the Spanish-American War and, upon its conclusion, the establishment of a Caribbean and Pacific empire by the United States.

During the cold war, ideology reigned supreme as containment of the USSR and the defeat of Communism were the overriding objectives of American strategy. But even then, resource considerations were not entirely neglected. The Eisenhower Doctrine of 1957 and the Carter Doctrine of 1980, though couched in the standard anti-Soviet rhetoric of the day, were principally intended to ensure continued US access to the Persian Gulf’s prolific oil reserves. And when President Carter established the nucleus of Centcom in 1980, its primary responsibility was protection of the Persian Gulf oil flow–not containment of the Soviet Union.

After the cold war, the first President Bush tried, and failed, to establish a global coalition of like-minded states–a “new world order”–that would maintain global stability and allow Western corporate interests (American firms foremost among them) to extend their reach across the planet. This approach, in watered-down form, was subsequently embraced by President Clinton. But 9/11 and the current Administration’s relentless campaign against “rogue states,” notably Iraq under Saddam Hussein and Iran, has reinjected an ideological element into US strategic planning. As George W. Bush tells it, the “war on terror” and rogue states are the contemporary equivalents of earlier ideological struggles against Fascism and Communism. Examine the issues closely, however, and it is impossible to disentangle the problem of Middle Eastern terrorism or the challenge posed by Iraq and Iran from the history of Western oil extraction in those regions.

Islamic extremism of the sort propagated by Osama bin Laden and Al Qaeda has many roots, but one of its major claims is that the Western assault on and occupation of Islamic lands–and the resulting defilement of Muslim peoples and cultures–has been driven by the West’s craving for Middle Eastern oil.

“Remember too that the biggest reason for our enemies’ control over our lands is to steal our oil,” bin Laden told his sympathizers in a December 2004 audiotaped address. “So give everything you can to stop the greatest theft of oil in history.”

Likewise, the US conflict with Iraq and Iran has largely been shaped by the fundamental tenet of the Carter Doctrine: that the United States will not permit the emergence of a hostile power that might gain control over the flow of Persian Gulf oil and thus–in Vice President Cheney’s words–“be able to dictate the future of worldwide energy policy.”

Concern over the safety of vital resource supplies has, therefore, been a central feature of strategic planning for a long time. But the attention now devoted to this issue represents a qualitative shift in US thinking, matched only by the imperial impulses that led to the Spanish-American War a century ago. This time, however, the shift is driven not by an optimistic faith in America’s capacity to dominate the world economy but by a largely pessimistic outlook regarding the future availability of vital resources and the intense competition over them waged by China and other rising economic dynamos. Faced with these dual challenges, Pentagon strategists believe that ensuring US primacy in the global resource struggle must be the top priority of American military policy.

Back to the Future

In line with this new outlook, fresh emphasis is being placed on the global role of the Navy. Using language that would sound surprisingly familiar to Alfred Mahan and the first President Roosevelt, the Navy, Marines and Coast Guard unveiled A Cooperative Strategy for 21st Century Seapower in October; it emphasizes America’s need to dominate the oceans and guard the vital sea lanes that connect this country to its overseas markets and resource supplies:

Over the past four decades, total sea borne trade has more than quadrupled: 90% of world trade and two-thirds of its petroleum are transported by sea. The sea-lanes and supporting shore infrastructure are the lifelines of the modern global economy. Heightened popular expectations and increased competition for resources, coupled with scarcity, may encourage nations to exert wider claims of sovereignty over greater expanses of ocean, waterways, and natural resources–potentially resulting in conflict.

To address this danger, the Defense Department has undertaken a massive modernization of the combat fleet, entailing the design and procurement of new aircraft carriers, destroyers, cruisers, submarines and a new type of “littoral combat” (coastal warfare) ship–an endeavor that could take decades to complete and consume hundreds of billions of dollars. Elements of this plan were unveiled by President Bush and Defense Secretary Gates in the budget proposal for Fiscal Year 2009, submitted in February. Among the big-ticket items highlighted in the shipbuilding budget are:

  • $4.2 billion for the lead ship of a new generation of nuclear-powered aircraft carriers;
  • $3.2 billion for a third Zumwalt class missile destroyer; these warships with advanced stealth capabilities will also serve as a “testbed” for a new class of missile cruisers, the CG(X);
  • $1.3 billion for the first two littoral combat ships;
  • $3.6 billion for another Virginia class submarine, the world’s most advanced undersea combat vessel in production.

Proposed shipbuilding programs will cost $16.9 billion in FY 2009, on top of $24.6 billion voted in FY 2007 and FY 2008.

The Navy’s new strategic outlook is reflected not only in the procurement of new vessels but also in the disposition of existing ones. Until recently most naval assets were concentrated in the North Atlantic, the Mediterranean and the Northwest Pacific in support of American forces assigned to NATO and the defense pacts with South Korea and Japan. These ties still figure prominently in strategic calculations, but ever-increasing weight is placed on the protection of vital trade links in the Persian Gulf, the Southwest Pacific and the Gulf of Guinea (close to Africa’s major oil producers). In 2003, for example, the head of the US European Command declared that the aircraft carrier battle groups under his command would be spending fewer months in the Mediterranean and “half their time going down the west coast of Africa.”

A similar outlook is guiding the realignment of overseas bases, which has been under way for the past several years. When the Bush Administration came into office, most major bases were in Western Europe, Japan or South Korea. Under the prodding of then-Defense Secretary Rumsfeld, however, the Pentagon began to relocate forces from the outer fringes of Eurasia to its central and southern regions–especially East-Central Europe, Central Asia and Southwest Asia–as well as to North and Central Africa. True, these areas are home to Al Qaeda and the Middle Eastern “rogue states”–but they also contain 80 percent or more of the world’s oil and natural gas, as well as reserves of uranium, copper, cobalt and other critical industrial materials. And, as noted, it is impossible to separate the one from the other in US strategic calculations.

A case in point is the US plan to maintain a basing infrastructure to support combat operations in the Caspian Sea basin and Central Asia. American ties with states in this area were established several years before 9/11, to protect the flow of Caspian Sea oil to the West. Believing that the Caspian basin could prove a valuable new source of oil and natural gas, President Clinton worked assiduously to open the doors to US involvement in the area’s energy production; aware also of the endemic ethnic antagonisms in the region, he sought to bolster the military capabilities of friendly local powers and to prepare for possible intervention by American forces. President Bush later built on these efforts, increasing the flow of US military aid and establishing bases in the Central Asian republics.

A corresponding mix of priorities governs the Pentagon’s plans to retain a constellation of “enduring” bases in Iraq. Many of these installations will no doubt be used to support continuing operations against insurgent forces, for intelligence activities or for the training of Iraqi army and police units. Even if all US combat troops are withdrawn in accordance with plans announced by senators Clinton and Obama, some of these bases will probably be retained for the training activities they say will continue. At least some bases, moreover, are specifically earmarked for the protection of Iraqi oil exports. In 2007, for example, the Navy revealed that it had established a command-and-control facility atop an offshore Iraqi oil terminal in the Persian Gulf to oversee the protection of vital terminals.

A Global Struggle

No other major power is capable of matching the United States when it comes to the global deployment of military power in the pursuit or protection of vital raw materials. Nevertheless, other powers are beginning to challenge this country in various ways. In particular, China and Russia are providing arms to oil and gas producers in the developing world and beginning to enhance their military capacity in key energy-producing areas.

China’s drive to gain access to foreign supplies is most evident in Africa, where Beijing has established ties with the oil-producing governments of Algeria, Angola, Chad, Equatorial Guinea, Nigeria and Sudan. China has also sought access to Africa’s abundant mineral supplies, pursuing copper in Zambia and Congo, chromium in Zimbabwe and a range of minerals in South Africa. In each case the Chinese have wooed suppliers through vigorous diplomacy, offers of development assistance and low-interest loans, high-visibility cultural projects–and, in many cases, arms. China is now a major supplier of basic combat gear to many of these countries and is especially known for its weapons sales to Sudan–arms that reportedly have been used by government forces in attacks on civilian communities in Darfur. Moreover, like the United States, China has supplemented its arms transfers with military-support agreements, leading to a steady buildup of Chinese instructors, advisers and technicians, who now compete with their US counterparts for the loyalty of African military officers.

Much the same process is under way in Central Asia, where China and Russia cooperate under the auspices of the Shanghai Cooperation Organization (SCO) to provide arms and technical assistance to the military forces of the Central Asian “stans”–again competing with the United States to win the loyalty of local military elites. In the 1990s Russia was too preoccupied with Chechnya to pay much attention to this area, and China was likewise consumed with other priorities, so Washington enjoyed a temporary advantage; in the past five years, however, Moscow and Beijing have made concerted efforts to gain influence in the region. The result has been a far more competitive geopolitical environment, with Russia and China, linked through the SCO, gaining ground in their drive to diminish US influence.

A clear expression of this drive was the military exercise the SCO conducted last summer, the first of its kind to feature participation by all member states. The maneuvers involved some 6,500 personnel from China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan and took place in Russia and China. Aside from its symbolic significance, the exercise was indicative of China’s and Russia’s efforts to enhance their capabilities, placing a heavy emphasis on long-range assault forces. For the first time, a contingent of Chinese airborne troops were deployed outside Chinese territory, a clear sign of Beijing’s growing assertiveness.

To ensure that the intended message of these exercises did not go unnoticed, the presidents of China and Russia used the occasion of an accompanying SCO summit in Kyrgyzstan to warn the United States (though not by name) against meddling in Central Asian affairs. In calling for a “multipolar” world, for example, Vladimir Putin declared that “any attempts to solve global and regional problems unilaterally are hopeless.” For his part, Hu Jintao noted, “The SCO nations have a clear understanding of the threats faced by the region and thus must ensure their security themselves.”

These and other efforts by Russia and China, combined with stepped-up US military aid to states in the region, are part of a larger, though often hidden, struggle to control the flow of oil and natural gas from the Caspian Sea basin to markets in Europe and Asia. And this struggle, in turn, is but part of a global struggle over energy.

The great risk is that this struggle will someday breach the boundaries of economic and diplomatic competition and enter the military realm. This will not be because any of the states involved make a deliberate decision to provoke a conflict with a competitor–the leaders of all these countries know that the price of violence is far too high to pay for any conceivable return. The problem, instead, is that all are engaging in behaviors that make the outbreak of inadvertent escalation ever more likely. These include, for example, the deployment of growing numbers of American, Russian and Chinese military instructors and advisers in areas of instability where there is every risk that these outsiders will someday be caught up in local conflicts on opposite sides.

This risk is made all the greater because intensified production of oil, natural gas, uranium and minerals is itself a source of instability, acting as a magnet for arms deliveries and outside intervention. The nations involved are largely poor, so whoever controls the resources controls the one sure source of abundant wealth. This is an invitation for the monopolization of power by greedy elites who use control over military and police to suppress rivals. The result, more often than not, is a wealthy strata of crony capitalists kept in power by brutal security forces and surrounded by disaffected and impoverished masses, often belonging to a different ethnic group–a recipe for unrest and insurgency. This is the situation today in the Niger Delta region of Nigeria, in Darfur and southern Sudan, in the uranium-producing areas of Niger, in Zimbabwe, in the Cabinda province of Angola (where most of that country’s oil lies) and in numerous other areas suffering from what’s been called the “resource curse.”

The danger, of course, is that the great powers will be sucked into these internal conflicts. This is not a far-fetched scenario; the United States, Russia and China are already providing arms and military-support services to factions in many of these disputes. The United States is arming government forces in Nigeria and Angola, China is aiding government forces in Sudan and Zimbabwe, and so on. An even more dangerous situation prevails in Georgia, where the United States is backing the pro-Western government of President Mikhail Saakashvili with arms and military support while Russia is backing the breakaway regions of Abkhazia and South Ossetia. Georgia plays an important strategic role for both countries because it harbors the Baku-Tbilisi-Ceyhan (BTC) pipeline, a US-backed conduit carrying Caspian Sea oil to markets in the West. There are US and Russian military advisers/instructors in both areas, in some cases within visual range of each other. It is not difficult, therefore, to conjure up scenarios in which a future blow-up between Georgian and separatist forces could lead, willy-nilly, to a clash between American and Russian soldiers, sparking a much greater crisis.

I estimate that it costs approximately $100 billion to $150 billion per year to enforce the Carter Doctrine, not including the war in Iraq. Extending that doctrine to the Caspian Sea basin and Africa will add billions. A new cold war with China, with an accompanying naval arms race, will require trillions in additional military expenditures over the next few decades. This is sheer lunacy: it will not guarantee access to more sources of energy, lower the cost of gasoline at home or discourage China from seeking new energy resources.

If, as is widely predicted, global oil reserves have begun to shrink by then, both of our countries could be locked in a dangerous struggle for dwindling supplies in chronically unstable areas of the world. The costs, in terms of rising military outlays and the inability to invest in more worthwhile social, economic and environmental endeavors, would be staggering.



Gordon, G. April 3, 2005. Recession, famine and war seen if demand outstrips supply. Experts fear day when oil runs low. Sacramento Bee.

Within a couple of hours last week, crude oil prices hit a record $56 a barrel, President Bush fretted publicly over world oil shortages and the Senate voted to open an Alaskan wildlife refuge to drilling.

The converging events drew attention to what administration officials call a temporary global energy crunch. But bigger worries also are bubbling to the surface – fears of a day of reckoning over world oil reserves.

Even as China and India are joining the grab for oil, most experts agree that world production will peak sometime in the next several decades – more likely in the next couple of years, a gaggle of outspoken academics say.

If rising petroleum demand meets falling supply before new energy sources are ready, government officials say, a world that runs on oil could face cataclysmic consequences ranging from recessions to famine and even war.

Peaking oil production “will result in dramatically higher oil prices, which will cause protracted economic hardship in the United States and the world,” a team of Energy Department consultants warned in a report last month. “The challenge of oil peaking deserves immediate, serious attention if risks are to be fully understood and mitigation begun on a timely basis.”

The most obvious step is to transform into a fuel-efficient fleet the 200 million cars, sport-utility vehicles and trucks that guzzle two-thirds of America’s 21 million-barrel-a-day oil consumption, consultant Robert Hirsch and colleagues wrote.

After the peak, said senior Energy Information Administration petroleum geologist David Morehouse, the rate of production drop-off from declining oil fields would likely be “pretty quick.”

“We don’t want the world oil peak to sneak up on us,” said John Wood, who heads a Dallas-based unit that projects oil supply and demand for the EIA.

Kenneth Deffeyes, a Princeton University geology professor, says it might be too late to plan. Deffeyes worked previously in Shell Oil’s research laboratory alongside M. King Hubbert, who gained fame when he accurately predicted in 1956 that oil production in the continental United States would peak between 1965 and 1970. Using a similar formula, Deffeyes predicts that the global peak will occur by next Thanksgiving.

If Deffeyes is right, Morehouse said, “our goose is cooked. If things get bad enough, and somebody gets desperate enough,” he said, an oil peak scenario could lead to war.

Amos Nur, a Stanford University geophysicist, all but predicts a war with China over oil. He notes that Americans consume a per-capita average of 25 barrels of oil each year, while the Chinese average 1.3 barrels and the people of India less than a barrel. If Chinese and Indian consumption reached one-quarter or a third of U.S. consumption, he writes, it would require 50 percent more oil worldwide and tensions could “slide into a military conflict.”

Bush told a news conference that new oil demand “from countries like China” is “outracing supply” and driving up prices.

Matthew Simmons, chairman of a Houston-based oil industry investment bank, contends in a forthcoming book that the Saudis damaged their oil fields by overproducing in the early 1970s and again after Iraq invaded Kuwait in 1990. That changed the subsurface pressure, creating huge water problems that will make it harder to recover oil, he said.



Yardley, J., et al. April 8, 2005. Chinese Navy Buildup Gives Pentagon New Worries. New York Times

At a time when the American military is consumed with operations in Iraq and Afghanistan, global terrorism and the threat of nuclear proliferation in North Korea and Iran, China is presenting a new and strategically different security concern to America, as well as to Japan and Taiwan, in the western Pacific, Pentagon and military officials say.

China, these officials say, has smartly analyzed the strengths and weaknesses of the American military and has focused its growing defense spending on weapons systems that could exploit the perceived American weaknesses in case the United States ever needs to respond to fighting in Taiwan.

A decade ago, American military planners dismissed the threat of a Chinese attack against Taiwan as a 100-mile infantry swim. The Pentagon now believes that China has purchased or built enough amphibious assault ships, submarines, fighter jets and short-range missiles to pose an immediate threat to Taiwan and to any American force that might come to Taiwan’s aid.

In the worst case in a Taiwan crisis, Pentagon officials say that any delay in American aircraft carriers reaching the island would mean that the United States would initially depend on fighter jets and bombers based on Guam and Okinawa, while Chinese forces could use their amphibious ships to go back and forth across the narrow Taiwan Strait.  Some American military analysts believe China could now defeat Taiwan before American forces could arrive at the scene, leaving a political decision about whether to attack, even though Taiwan would already be lost.

“They are building their force to deter and delay our ability to intervene in a Taiwan crisis,” said Eric McVadon, a former military attaché at the United States Embassy in Beijing. “What they have done is cleverly develop some capabilities that have the prospect of attacking our niche vulnerabilities.”

China’s rapid military modernization is the major reason President Bush has warned the European Union not to lift its arms embargo against Beijing. At the same time, some officials in Washington, particularly on Capitol Hill, would like Taiwan to buy more American arms to beef up its own defenses.

Japan, America’s closest ally in East Asia and China’s rival for regional dominance, is also watching China’s buildup and reorganizing its own military. The Japanese prime minister, Junichiro Koizumi, has echoed President Bush by calling on Europe to leave the arms embargo against China in place. A research center affiliated with Japan’s Defense Ministry has also criticized China’s increased military spending and cautioned that Beijing was rushing to prepare for possible conflict with Taiwan, an assertion China sharply denied. The growing friction between Japan and China, fueled by rising nationalism in both countries, is just one of the political developments adding to tensions in East Asia. In March, China passed a controversial new “antisecession” law authorizing a military attack if top leaders in Beijing believe Taiwan moves too far toward independence – a move that brought hundreds of thousands of people in Taiwan out to protest. China’s most recent military white paper also alarmed American policy makers because it mentioned the United States by name for the first time since 1998. It stated that the American presence in the region “complicated security factors.” China, meanwhile, accused the United States and Japan of meddling in a domestic Chinese matter when Washington and Tokyo recently issued a joint security statement that listed peace in Taiwan as a “common strategic objective.”

“The potential for a miscalculation or an incident here has actually increased, just based on the rhetoric over the past six months to a year,” one American intelligence analyst in Washington said. At a welcoming ceremony on March 28 for the command ship Blue Ridge of the American Seventh Fleet, here at the home base of China’s South Sea Fleet, the American commanding officer, Capt. J. Stephen Maynard and his Chinese counterpart, Senior Capt. Wen Rulang, sidestepped questions about the antisecession law and military tensions. Asked about China’s military buildup and how America should view it, Captain Wen praised the United States Navy as the most modern in the world. “As for China,” Captain Wen said, “our desire is to upgrade China’s self-defense capabilities.”

In China’s view, however, self-defense involves Taiwan, which it regards as a breakaway province and which the United States, by treaty, has suggested it would help defend. In 1996, when China fired warning-shot missiles across the Taiwan Strait before the Taiwanese elections, President Clinton responded by sending a carrier battle group to a position near Taiwan. Then, China could do nothing about it, Now, analysts say, it can.

In fact, American carriers responding to a crisis would now initially have to operate at least 500 miles from Taiwan, which would reduce the number of fighter sorties they could launch. This is because China now has a modern fleet of submarines, including new Russian-made nuclear subs that can fire missiles from a submerged position. America would first need to subdue these submarines.

China launched 13 attack submarines between 2002 and 2004, a period when it also built 23 ships that can ferry tanks, armored vehicles and troops across the 100-mile strait. Tomohide Murai, an expert on the Chinese military at the National Defense Academy in Tokyo, said that China’s buildup is intended to focus on an American response, but he is skeptical that China already has the naval and air superiority over Taiwan to dominate the strait.

But Mr. Murai said China’s military would continue to expand and modernize for years to come because of the country’s booming economy, while Japan is restricted by budget constraints and its World War II era Constitution. Chinese subs and Japanese vessels already have played politically explosive cat-and-mouse games around a string of islands claimed by both countries.

China, meanwhile, often expresses concern about rising militarism in Japan and notes that Japan spends more on its military budget – a debatable point since Western experts say China vastly understates its own military spending. China also worries that the United States Navy could be used to try to cut off oil supplies if a conflict ever arises over Taiwan.

Robert Karniol, an Asia specialist at Jane’s Defense Weekly, noted that Japan is also modernizing its military in a significant way, largely as its competes with China for regional dominance in Asia. He said Japan is restructuring the independent branches of its military under a unified command modeled after the American Joint Chiefs of Staff.

And just as Japan is looking at China, he said, so is China looking past Taiwan at Japan. China’s naval upgrades will not only strengthen its hand against Taiwan but also expand its influence around Asia. “If the Taiwan issue was resolved next month, China’s military modernization would not end,” Mr. Karniol said. “The Chinese understand that if their ambition is to become the dominant power in Asia – well, who can disrupt that? The United States and Japan.”



Wiggin, A. October 14, 2013. The Coming War Between the U.S. and (Insert Country Here). Dailyreckoning.com

War between the US and China — an unpleasant thought, for sure…unless you happen to be a defense contractor. The threat of war could be sufficient to power the defense industry’s profit growth for many years.

We would not be tackling this grim topic — nor engaging in the financial market version of grave-dancing — if the suits and uniforms in Washington understood that China is merely implementing its own version of the Monroe Doctrine.

China’s Monroe Doctrine aims to keep the United States from getting closer than it is already. If you don’t remember the Monroe Doctrine from history class, it goes like this: President James Monroe in 1823 put the European powers on notice that if they meddled anywhere in Latin America, the United States would step in to put a stop to it. It was a big “keep out of our backyard” sign.

OK, it was more subtle than that; an aging Thomas Jefferson congratulated Monroe on achieving a “cordial friendship with England.” The doctrine was, indeed, a tacit agreement between the United States and Great Britain. The US took a free ride on the Royal Navy. Its ships patrolled the waters surrounding Latin America, keeping the continental powers far from America’s doorstep.

The original Monroe Doctrine aimed to keep Europeans away. China’s Monroe Doctrine aims to keep the United States from getting closer than it is already.

“The Pacific basin has long been home to the United States’ largest trading partners, and Washington deploys more than 320,000 military personnel in the region, including 60% of its navy,” writes Conn Hallinan of the think tank Foreign Policy in Focus. “The American flag flies over bases in Japan, the Philippines, South Korea, Malaysia, Thailand, the Marshall Islands, Guam and Wake.” The US Seventh Fleet routinely sails near the Chinese coast, to the edge of the “12-mile limit” where international waters end.

No wonder Chinese leaders sense — rightly or wrongly — that they’re being encircled.

“China has made it clear that it will not tolerate the threat to its security represented by a foreign military presence at its gates when these foreign forces are engaged in activities designed to probe Chinese defenses and choreograph a way to penetrate them,” writes our acquaintance Chas Freeman, the veteran US diplomat who was President Nixon’s interpreter on his groundbreaking visit to “Red” China in 1972.

“There’s no reason to assume that China is any less serious about this than we would be if faced with similarly provocative naval and air operations along our frontiers.

Thus are the Chinese asserting their dominion over the disputed Senkakus Islands. “China sees the islands as part of its defensive parameter,” Hallinan explains, “an understandable point of view considering the country’s history. China has been the victim of invasion and exploitation by colonial powers, including Japan, dating back to the first Opium War in 1839.

China also insists it rightly controls a host of islands in the South China Sea — rich fishing grounds and a potential source of oil and gas. These islands, such as the Spratlys and Paracels, are also claimed by… oh, let’s run down the list: Vietnam, Malaysia, Taiwan, Brunei and the Philippines. Maybe the Kardashians too, for all we know.

In addition, China has

  • commissioned its first aircraft carrier
  • Developed a whiz-bang stealth fighter jet called the J-20
  • Goosed its defense spending by double-digit percentages every year for the past decade (although Beijing’s defense budget it still one-fifth the size of Washington’s).

A sensible US response would go something like this: “Hey, China’s implementing its own Monroe Doctrine. They want to be in charge in their own backyard. Meanwhile, we’re $16.4 trillion in debt. Heck, we owe $1.1 trillion of that to China. Why are we going deeper in debt to keep 60% of the Navy stationed in the Pacific basin? Maybe we should reconsider this whole ‘American lake’ thing.

“…America’s strategic move east is aimed in practical terms at pinning down and containing China and counterbalancing China’s development.”

Instead, the US government is doubling down.

“As the war in Iraq winds down and America begins to withdraw its forces from Afghanistan, the United States stands at a pivot point,” then Secretary of State Hillary Clinton wrote in Foreign Policy’s November 2011 issue. “One of the most important tasks of American statecraft over the next decade will therefore be to lock in a substantially increased investment — diplomatic, economic, strategic and otherwise — in the Asia-Pacific region.

In DC wonk circles, this statement of intentions has come to be known as “the pivot”.

The same month Clinton published that article — with the presumptuous title “America’s Pacific Century” — the Obama administration stationed 2,500 US troops on Australia’s northern coast for the first time. More encirclement.

“The U.S. sees a growing threat to its hegemony from China,” said a commentary from the official Xinhua News Agency. “Therefore, America’s strategic move east is aimed in practical terms at pinning down and containing China and counterbalancing China’s development.

In Empire of Debt, we postulated the empire has a logic all its own. That logic will bring about events beyond your control. It is far better to understand those events and plan your life and your portfolio accordingly… than to allow them to blindside you and your family.


May 2013. ASPO-USA.

[My comment: This piece from the Association for the Study of Peak Oil, makes me wonder if China will be unable to wage war because they’ve “attacked themselves” with so much pollution and toxins that they will internally collapse]

China’s major energy issue right now is what to do about the toxic smog which comes from burning in excess of 4 billion tons of coal and 10 million barrels of oil, with minimal pollution controls, each year. Last winter air quality in Beijing rose to nearly 1,000 ppm as compared to 50 ppm or below which is considered good. Even in April the pollution index was flirting with 200 ppm which is flat out unhealthy. China’s economic miracle over the past 35 years has been based on rapidly increasing consumption of large quantities of coal and oil. To maintain economic growth without an annual increase of 10 percent more coal and 5 percent more oil consumption each will be difficult. Last week it was revealed that China’s top power producer recently started construction on 16 large energy projects without approval from Beijing. China’s leaders, including the new President, know they have a major problem. If they continue to increase their pollution their citizens will become ill and die at ever increasing rates and anyone with an option will choose to live somewhere where they don’t have to breathe China’s air. In short the China’s economic miracle seems to be on course to strangle itself. Even though Beijing has numerous plans to deal with air pollution while continuing to grow economically, the simple fact is that Chinese Communist Party’s no-elections legitimacy is based largely on the argument that it can deliver 7-10 percent economic growth each year. At all levels China’s leaders know that they will be judged on how well they deliver economic growth to the exclusion of all other concerns. A good guess would be that air, water, and soil pollution in China is going to get a lot worse before actions that will seriously slow economic growth are taken.



Glain, S. Dececember 20, 2004. Yet Another Great Game. Beijing’s aggressive petrodiplomacy in Africa has put it on a collision course with Washington. Newsweek International.

If a report circulating among senior members of America’s defense establishment is any guide, the Sino-American war for future petroleum supplies has already begun.

According to the 80-page study, Beijing has identified the United States as “a paramount threat to its energy security and economic stability” and is busily establishing a “string of pearls” — forward deployments of surveillance stations, naval facilities and airstrips–to safeguard the petroleum-transport route from the Persian Gulf to the South China Sea. Once it controls Asia’s vital sea lanes, the report goes on, China may then move on some of the world’s key oil reserves–perhaps by replacing the United States as Saudi Arabia’s patron and protector, or by seizing a strategic oil pipeline in the Russian Far East. The Chinese, the report says, “equate energy security with physical possession or control of energy supplies” and “have a tendency to see securing their energy security as a zero-sum game.

Nowhere is that more clear than in sub-Saharan Africa, where Chinese oil and natural-gas companies have over the past several years inked deals with regimes such as Sudan’s. o  “It’s very effective and farsighted diplomacy,” says John Tkacik, a China expert at the Heritage Foundation in Washington. “They look to where their opponent is not and discreetly place their pieces in unclaimed areas of the map, which in this case is Africa.”

In staking out Africa, however, Beijing is setting itself up for a seismic rivalry with the United States, which has identified the region as key to its efforts to diversify its oil sources away from the unstable Middle East. In the aftermath of 9/11, a U.S.-Israeli study group recommended that Washington prevent “rivals such as China” from horning in on Africa’s natural resources, while the Pentagon study says, “Chinese companies are investing in East, West, and North Africa and [the Chinese Army] has sent troops to protect its energy investments in Sudan” an assertion long rumored by human-rights groups and other Africa experts but never confirmed. In turn, American oil companies have raised their profile in Africa amid rumors that the United States is planning to build a military base in the oil-rich Gulf of Guinea.

“In Africa,” says Jamal Qureshi, an oil-markets expert at PFC Energy in Washington, “you’ve got new players, with China as a possible counterweight to the U.S. There could be elements of confrontation.”

Before 9/11, U.S. oil companies generally kept their distance from such countries as Sudan, the Democratic Republic of the Congo and Libya, due to political risk, concerns over human-rights violations, sanctions or all three. True, U.S. firms have done business with autocracies like Nigeria, despite the Bush administration’s public snubbing of President Olusegun Obasanjo. But until now, such deals have been cut on a piecemeal basis–unlike those recently struck by state-owned China National Petroleum Co. (CNPC) as part of an official policy of nurturing diplomatic ties in exchange for oil concessions.

During the cold war, China reached out to Africa in political solidarity with its nonaligned nations, and to block them from having relations with Taiwan. Indeed, Africa accounts for a dwindling share of the 27 or so countries that still recognize the island state over China. Now China is supporting developing countries as part of a transparent bid for economic gain, and its petrodiplomacy extends worldwide.

In October Beijing agreed to buy up to $100 billion in Iranian petroleum and gas and to help develop a major Iranian oilfield near the Iraqi border–evidence of an evolving Sino-Iranian alliance that is featured in the Pentagon report. Earlier this year Beijing signed a 25-year deal to develop natural-gas reserves in Iran–despite U.S.-led sanctions–and it is increasingly active in the Gulf states. Iranian Oil Minister Bijan Zanganeh recently said that the strengthening Tehran-Beijing link was “neutralizing” U.S.-imposed sanctions. “Japan is our No. 1 energy importer for historical reasons… but we would like to give preference to exports to China,” said Zanganeh.

Africa, though, remains the new oil frontier for both China and the United States. Since Chinese President Hu Jintao’s February goodwill mission to oil-producing states, Beijing has signed agreements with Algeria, Gabon and Nigeria, and is discussing similar deals with Niger, Chad, the Central African Republic, Congo and Angola. In return for access to raw materials in Africa, China is financing and building roads, dams, airports and energy grids, signing free-trade agreements and even promoting Africa at home as a tourist destination. Within the next half decade, according to energy analysts, Africa is expected to account for nearly a third of the oil China purchases overseas, up from 25 percent today.

Once oil-independent, China has over the last decade become increasingly reliant on imports, which now account for 60 percent of its oil consumption, up from 6.4 percent in 1993. Within the next five years, according to Beijing, China will be importing 50 million tons of oil and 50 billion cubic meters of gas annually. Even for a country more concerned with human rights, those kinds of numbers would remove many inhibitions.

In 2001 Beijing identified Sudan as the springboard for its campaign to triple its overseas oil production within four years, despite U.N. sanctions against the Sudanese regime. CNPC now dominates a consortium of Asian companies drilling Sudan’s fields under license by Khartoum. Through a subsidiary, CNPC took a lead role in building a 1,500-kilometer-long pipeline from the main oilfields to the Red Sea and built a refinery near Khartoum with a 2.5 million-ton processing capacity. Safely distanced from the chaos in southern Darfur, these facilities have helped swell Sudan’s oil output to 345,000 barrels per day, up from 270,000 in 2003, and provide an estimated 8 percent of China’s total oil consumption.

The sales have also helped finance Khartoum’s arms purchases from Beijing; the government is thought to be nurturing a Sudanese arms industry with Chinese technology. “Khartoum is emboldened and encouraged by China’s assistance,” says Jemera Rone, a Sudan specialist for Human Rights Watch. “It is using petrodollars to manufacture arms, many of them knockoff versions of Chinese weapons.”

The Sino-Sudanese ties are complicating U.N. efforts to isolate Khartoum for its alleged complicity in massacres and rapes in southern Darfur. Beijing has blocked or diluted several U.S.-sponsored draft resolutions condemning Khartoum, and has signaled it will veto further sanctions. Washington, which needs Chinese support in Security Council matters regarding Iraq, is unlikely to push Beijing on Sudan.

While the United States appears to have conceded Sudan to China, it is active elsewhere in Africa. U.S. President George W. Bush has made a point of meeting with leaders of such countries as Chad and Congo, which in the past barely registered on Washington’s foreign-policy map. The African Oil Policy Initiative Group, a confederation of oil executives, members of Congress, White House officials and consultants, has recommended that the United States work openly with Nigeria to secure Africa’s oil-rich areas and enhance the prospects for foreign investment. It has also urged the Pentagon to build a naval base at the oil-rich islands of So Tome and Principe, and to permanently deploy a large force of U.S. troops there. Some analysts even suspect that the deliberate way in which the United States lifted sanctions on Libya earlier this year was a move to check China’s growing influence in Africa. If China sees energy security as a zero-sum game, so, it appears, does its American rival.



Scully, M.G. September 29, 2004. The Natural World. he End of Easy Oil. The Chronicle of Higher Education.

You don’t have to be a conspiracy theorist or a Michael Moore enthusiast to think that Donald Rumsfeld and his colleagues in the Bush administration are being disingenuous when they declare that the war in Iraq is not about oil.

In fact, according to the authors of two new books, most foreign- policy and many domestic decisions made by the current administration — and by its predecessors going back to that of Franklin D. Roosevelt — have been shaped, overtly or covertly, by a desire to assure a secure supply of cheap petroleum for America’s economic and military needs. And, the authors of the books conclude, maintaining that “energy security” will become more difficult, more dangerous, and more likely to produce violence in the years ahead.

Our petroleum habit will have growing influence on both geopolitical and economic issues, according to Paul Roberts in The End of Oil: On the Edge of a Perilous New World, published by Houghton Mifflin, and Michael T. Klare, in Blood and Oil: The Dangers and Consequences of America’s Growing Petroleum Dependency, published by Metropolitan Books.

As Roberts, a writer who focuses on economic and environmental issues, says: “Although we will not run out of oil tomorrow, we are nearing the end of what might be called easy oil. Even in the best of circumstances, the oil that remains will be more costly to find and produce and less dependable than the oil we are using today.”

Klare, a professor of peace and world-security studies at Hampshire College and defense correspondent for The Nation, suggests that the United States has never resolved the inherent tension between our need for assured supplies of petroleum to keep the economy cooking and our growing reliance on overseas sources of that oil, especially from areas, like the Persian Gulf, that have a long and continuing history of instability.

Rather than develop a sustained strategy for reducing our reliance on such sources, he says, American leaders “have chosen to securitize oil — that is, to cast its continued availability as a matter of ‘national security,’ and thus something that can be safeguarded through the use of military force.”

Klare argues that our demands for energy and those of other major powers will require the petroleum-rich Gulf states to “boost their combined oil output by 85 percent between now and 2020. … Left to themselves, the Gulf countries are unlikely to succeed; it will take continued American intervention and the sacrifice of more and more American blood to come even close. The Bush administration has chosen to preserve America’s existing energy posture by tying its fortunes to Persian Gulf oil.”

Even more worrisome, Klare says, is the intense and growing competition among countries such as the United States, China, India, and those in the European Community over petroleum supplies. “This competition is already aggravating tensions in several areas, including the Persian Gulf and Caspian Sea basins,” he writes. “And although the great powers will no doubt seek to avoid clashing directly, their deepening entanglement in local disputes is bound to fan the flames of regional conflicts and increase the potential for major conflagrations.”

Roberts notes, for instance, that the development of renewable alternatives to petroleum, such as biofuels, solar power, clean coal, and hydrogen, has not been as rapid or as simple as their promoters had hoped. And even if those alternatives had been developed more fully, he adds, “many of the new fuels and technologies lack high power density and simply will not be able to deliver the same energy punch as the hydrocarbons they replace.”

What that means, he says, is that the new technologies must be accompanied by sharp increases in energy efficiency. He is not sanguine about achieving such gains. “In spite of high energy prices and rising concerns about energy security, consumers and policymakers alike have all but stopped talking about the ways we use energy, how much we waste, and what might be changed.”

Klare writes that President Bush’s choice of Vice President Dick Cheney to conduct a major review of energy policy preordained an anti-efficiency outcome. When the National Energy Policy Development Group began its work, in February 2001, he writes, the United States “stood at a crossroads.” It could “continue consuming more and more petroleum and sinking deeper and deeper into its dependence on imports,” or “it could choose an alternative route, enforcing strict energy conservation, encouraging the use of fuel-efficient vehicles, and promoting the development of renewable energy sources.”

While the group’s report — National Energy Policy — gave lip service to the concepts of conservation and energy self-sufficiency, he says, a close reading “reveals something radically different.” The policy “never envisions any reduction in our use of petroleum,” Klare writes. “Instead it proposes steps that would increase consumption while making token efforts to slow, but not halt, our dependence on foreign providers.”

Given the Bush administration’s close ties to the oil-and-gas industry, such an outcome may have been inevitable, Klare says. But even an administration without such links would find it politically risky to move to a radically different energy policy. Like his predecessors, he notes, President Bush “understood that shifting to other sources of energy would entail a change in lifestyle that the American public might not easily accept. … And so he chose the path of least resistance.”

Roberts, who focuses on the question of total energy supply more than on the geopolitical consequences of relying on foreign oil, finds little cause for optimism in our current strategy. The longer we put off the transition to a postpetroleum era, the harder that transition will be, he says, and the more unrest and violence we will encounter.

As oil supplies dwindle, “energy security, always a critical mission for any nation, will steadily acquire greater urgency and priority,” he writes. “As it does, international tensions and the risk of conflict will rise, and these growing threats will make it increasingly difficult for governments to focus on longer-term challenges, such as climate or alternative fuels — challenges that are in themselves critical to energy security, yet which, paradoxically, will be seen as distractions from the campaign to keep energy flowing. … The more obvious it becomes that an oil-dominated energy economy is inherently insecure, the harder it becomes to move on to something else.”

In the meantime, Klare argues, the Bush administration’s war on terrorism, the impulse of its neoconservative supporters to spread “democracy” to the Middle East, and our desperate need for stable supplies of oil have merged into a single strategy — one that will commit us to maintaining military forces in many parts of the world and to using those forces to protect oil fields and supply routes.

“It is getting hard,” he writes, “to distinguish U.S. military operations designed to fight terrorism from those designed to protect energy assets.”

Many of the authors’ arguments and conclusions have been advanced before, and both men fall into the category of “energy pessimists,” who do not believe that we will be able to maintain our current levels of oil consumption for as long as agencies like the U.S. Geological Survey and Europe’s International Energy Agency predict. Such agencies, Roberts says, “are under intense political pressure to err on the side of wild optimism.”

But regardless of whether Klare and Roberts err on the side of pessimism, their message is unsettling: We are headed into uncharted territory, led by a government that seems prepared to use force, when necessary, to preserve the current system. We face growing competition from other countries for a finite resource at a time of growing animosity toward the United States.

It is a message that is moving beyond academic and environmental circles. In a recent “midyear outlook” report, Wachovia Securities, a large investment company, examines the impact of “the end of cheap oil” for investors. “We neither expect, nor wish to dwell on, worst- case scenarios — but the market knows it is foolhardy to ignore the possibilities,” the report says. It warns that with record-high oil prices and many domestic refineries operating at or near capacity, “a disruption somewhere in the production chain could have a greater than normal effect on energy markets.”



Roberts, P. June 28, 2004. The Undeclared Oil War. Washington Post.

While some debate whether the war in Iraq was or was not “about oil,” another war, this one involving little but oil, has broken out between two of the world’s most powerful nations.

For months China and Japan have been locked in a diplomatic battle over access to the big oil fields in Siberia. Japan, which depends entirely on imported oil, is desperately lobbying Moscow for a 2,300-mile pipeline from Siberia to coastal Japan. But fast-growing China, now the world’s second-largest oil user, after the United States, sees Russian oil as vital for its own “energy security” and is pushing for a 1,400-mile pipeline south to Daqing.

The petro-rivalry has become so intense that Japan has offered to finance the $5 billion pipeline, invest $7 billion in development of Siberian oil fields and throw in an additional $2 billion for Russian “social projects” — this despite the certainty that if Japan does win Russia’s oil, relations between Tokyo and Beijing may sink to their lowest, potentially most dangerous, levels since World War II.

Asia’s undeclared oil war is but the latest reminder that in a global economy dependent largely on a single fuel — oil — “energy security” means far more than hardening refineries and pipelines against terrorist attack. At its most basic level, energy security is the ability to keep the global machine humming — that is, to produce enough fuels and electricity at affordable prices that every nation can keep its economy running, its people fed and its borders defended. A failure of energy security means that the momentum of industrialization and modernity grinds to a halt.

In the “emerging” economies, such as Brazil, India and especially China, energy demand is rising so fast it may double by 2020. And this only hints at the energy crisis facing the developing world, where nearly 2 billion people — a third of the world’s population — have almost no access to electricity or liquid fuels and are thus condemned to a medieval existence that breeds despair, resentment and, ultimately, conflict.

In other words, we are on the cusp of a new kind of war — between those who have enough energy and those who do not but are increasingly willing to go out and get it. While nations have always competed for oil, it seems more and more likely that the race for a piece of the last big reserves of oil and natural gas will be the dominant geopolitical theme of the 21st century.

Already we can see the outlines. China and Japan are scrapping over Siberia. In the Caspian Sea region, European, Russian, Chinese and American governments and oil companies are battling for a stake in the big oil fields of Kazakhstan and Azerbaijan. In Africa, the United States is building a network of military bases and diplomatic missions whose main goal is to protect American access to oilfields in volatile places such as Nigeria, Cameroon, Chad and tiny Sao Tome — and, as important, to deny that access to China and other thirsty superpowers.

The diplomatic tussles only hint at what we’ll see in the Middle East, where most of the world’s remaining oil lies. For all the talk of big new oil discoveries in Russia and Africa — and of how this gush of crude will “free” America and other big importers from the machinations of OPEC — the geological facts speak otherwise. Even with the new Russian and African oil, worldwide oil production outside the Middle East is barely keeping pace with demand.

In the run-up to the Iraq war, Russia and France clashed noisily with the United States over whose companies would have access to the oil in post-Saddam Hussein Iraq. Less well known is the way China has sought to build up its own oil alliances in the Middle East — often over Washington’s objections. In 2000 Chinese oil officials visited Iran, a country U.S. companies are forbidden to deal with; China also has a major interest in Iraqi oil.

But China’s most controversial oil overture has been made to a country America once regarded as its most trusted oil ally: Saudi Arabia. In recent years, Beijing has been lobbying Riyadh for access to Saudi reserves, the largest in the world. In return, the Chinese have offered the Saudis a foothold in what will be the world’s biggest energy market — and, as a bonus, have thrown in offers of sophisticated Chinese weaponry, including ballistic missiles and other hardware, that the United States and Europe have refused to sell to the Saudis.

Granted, the United States, with its vast economic and military power, would probably win any direct “hot” war for oil. The far more worrisome scenario is that an escalating rivalry among other big consumers will spark new conflicts — conflicts that might require U.S. intervention and could easily destabilize the world economy upon which American power ultimately rests.

As demand for oil becomes sharper, as global oil production continues to lag (and as producers such as Saudi Arabia and Nigeria grow more unstable) the struggle to maintain access to adequate energy supplies, always a critical mission for any nation, will become even more challenging and uncertain and take up even more resources and political attention.

This escalation will not only drive up the risk of conflict but will make it harder for governments to focus on long-term energy challenges, such as avoiding climate change, developing alternative fuels and alleviating Third World energy poverty — challenges that are themselves critical to long-term energy security but which, ironically, will be seen as distracting from the current campaign to keep the oil flowing.

Paul Roberts is the author of “The End of Oil: On the Edge of a Perilous New World.”

Hale, D. April 5, 2004. Will China need a blue water navy to protect commodity imports? www.chinaonline.com

China’s immense need for raw materials will have many economic and political consequences.

First, China will have to develop a foreign policy and military strategy to protect its access to raw materials. As its trade ties expand with commodity exporting countries in Latin America, Africa, and southeast Asia, China will want to insure that they are reliable suppliers of critical raw materials. The sheer growth of trade should help to promote good political relations. The interesting question is whether China will perceive the need to have a larger Navy to protect shipments of oil from the Middle East, iron ore from Latin America, and liquefied natural gas from Australia.

In the late 19th century and early 20th century, commodities played an important role shaping British foreign policy. Britain nearly took the side of the confederacy during the American Civil War because of its large cotton imports from the south. Britain went to war with the Boers in South Africa in order to control the country’s large gold deposits. After oil replaced coal as the fuel of the Royal Navy, Britain significantly expanded her political role in the Middle East. She acquired protectorates such as Iraq and Kuwait from the Ottoman Empire. She helped to overthrow regimes in Iran which threatened her control of oil reserves. She also defended Malaya from a communist insurgency during the 1950s because of concern about the colony’s production of tin and rubber as well as the fact that Malaya was a major owner of pounds in the offshore Sterling area.

Commodities also have influenced American foreign policy. The U.S. maintained good relations with South Africa during the apartheid era in part because of the country’s large natural resource endowment. The U.S. went to war over Kuwait because of concern about Iraq controlling too large a share of the world’s oil reserves. The U.S. invaded Iraq during 2003 in part because of doubts about the reliability of Saudi Arabia as an ally and oil supplier. The U.S. is now moving to strengthen its relations with west Africa because it could be importing 25% of its oil from that region by 2005. Both the American Air Force and Navy have greatly increased their activity in the region.

Commodities have influenced Japanese foreign policy as well. During the 1970s, Japan adopted a pro-Arab foreign policy because of concern about oil supplies. In recent years, Japan has attempted to maintain a good relationship with Iran in order to obtain access to new oil deposits. Japan has also had a close relationship with Australia because of that country’s role as a primary supplier of iron ore and other raw materials to Japanese industry.

It has been over 500 years since China has deployed naval vessels far from the country’s territorial waters. But if China becomes dependent upon raw materials from regions as diverse as the Middle East, central Africa, and Latin America, she will naturally want to project power and influence in those regions.

China has already deployed 4,000 troops in the Sudan to protect its investment in an oil pipeline which it developed there with Petronas of Malaysia. The Sudan has been in a civil war for many years because of conflicts between the Moslem North and the black Christian South. China is concerned that the conflict could disrupt the pipeline so it has taken direct action to insure the project’s security. There has been little international attention focused on China’s role in the Sudan but is could set an important precedent for the future. As China’s dependence upon foreign commodities expands, it could decide to offer military support to governments in other countries suffering from civil wars or military rebellions. African countries also like doing business with Beijing because the Chinese government does not criticize their human rights policies. China’s relationship with Liberia demonstrated the flexibility of its political relationships with Africa. During recent years it has been a large buyer of Liberian timber despite the fact that Liberia had a civil war and authoritarian political regime which recognized Taiwan.

China may attempt to enhance her political relationship with the commodity producing countries by promoting bilateral free trade agreements. China, for example, is now holding talks with Australia about a potential FTA. The Chinese government recently appointed a very senior diplomat, Madam Fuying, as the new ambassador to Canberra in order to promote a more strategic relationship with the country. China is attracted to Australia because of the country’s large reserves of natural gas, coal, iron ore, and other raw materials. At a recent Africa-China summit conference in Addis Abba, China pledged to boost its two way trade with Africa to $30 billion by 2005 from $12.4 billion during 2002. It also has begun talks with South Africa on the creation of a new free trade agreement with that country. China intends to broaden its imports from oil to a variety of other commodities as well as to promote more investment.

As a result of China’s need for oil the government recently announced it was starting negotiations with the six nation Gulf Cooperation Council about a possible free trade agreement. The GCC – Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – has become China’s eighth largest trading partner. The agreement would be designed to promote both trade and investment between China and the Gulf countries. It would also be the second regional trade agreement after the one already under discussion with Asean.

China’s most important new investment in the middle east is a commitment by Sinopec to develop Iran’s Yadavaran oil field in exchange for agreeing to buy 10 million tonnes of Iranian liquefied natural gas annually for 25 years. This deal follows a contract signed by Zhuhai Zhenrong, one of China’s four state owned oil traders, to purchase 110 million tonnes of liquefied natural gas over 25 years starting in 2008. The most recent deal is worth a potential $70 billion and will cause Iran to be one of China’s major energy suppliers. Such large energy contracts will probably cause China to take Iran’s side in many diplomatic disputes with the U.S. and could even encourage China to supply arms to Iran if she is unable to obtain them from Europe.

Brazil is very excited about the potential for developing a “strategic partnership” with China. Brazil views a close relationship with Chinas as a pillar of its foreign policy because it wants to promote a network of alliances with other developing countries to challenge American hegemony. The Brazilians want to promote a multi-polar global power structure and believe China can play a major role in such a system. China actually regards itself as an emerging super-power, not just a developing country, but it will accommodate Brazil’s ambitions because it plans to massively expand its trade with Brazil. Chinese firms are planning a $2 billion investment in Brazil’s aluminum industry and a $1.5 billion investment in the steel sector.

China has already moved from being Brazil’s 15th trading partner in 1999 to being number two last year because of large increases in imports of soybeans and iron ore. Brazil hopes to boost its China exports to $10 billion by 2005 because of demand for many commodities, including dairy products, cotton, tropical fruit, fish and coffee. Brazil also has the potential to greatly increase its output of soybeans. In 2003, China accounted for one third of global trade in soy products and 20% of soy oil. As a result of China, Latin America now sends a rapidly growing share of its exports to east Asia, including 13% of pulp sales, 13% of steel, 43% of iron ore, and 26% of copper. Chile therefore plans to launch talks with China on a free trade agreement as well.

In a visit to Latin America during November, President Hu Jintao announced several major initiatives to strengthen economic relations with Brazil and Argentina. He announced that China would invest $8.5 billion in Brazilian infrastructure (railways, ports, highways) and $19 billion in Argentine infrastructure and energy development. He also agreed to import more meat and fruit from both countries. He declared both countries to be official destinations for Chinese tourists as well. China now sends out twenty million tourists every year, so this status is potentially valuable in competing for Chinese business. Hu Jintao also visited Cuba and the state owned company, Mini Metals, announced plans to invest in a Cuban ferro nickel project. China has plans to make other investments in Latin America’s energy sector as well. It has made a $100 million investment in Ecuador and plans to announce other major projects in the future. China is studying proposals to invest in the Venezuelan oil industry and will probably complete them when President Chavez visits Beijing in early 2005.

China’s need for petroleum could also transform its relationship with Russia. Trade between Russian and China is booming. It is likely to reach $22 billion this year or a level four times higher than five years ago. The countries are also planning infrastructure investments which could further enhance trade. In February, China announced that it would embark upon a 15 year project to build a railroad that would run 870 miles from eastern Russia to Dalian, a seaport in Manchuria. China is anxious to develop corporate relationships with Russian energy companies to obtain petroleum. The Chinese also attempted to purchase a medium sized Russian oil company, Slavneft, during 2002 but the deal was blocked by the Russian government. The delegation from the Chinese National Petroleum Company was arrested when they arrived in Russia. One western oil company conducted an opinion survey of Russian attitudes towards foreign investment and found far more acceptance of Japanese than Chinese investment.

China’s ambitions in Russia are complicated by the fact that Russia is highly insecure about its eastern frontier. The Russians fear that China could someday threaten their far eastern territory because much of it was Chinese before the conquests of the 19th century. There is also a huge imbalance of population. The Russian provinces in the Far East have lost 2 million people during the past decade while it is estimated that 3 million Chinese have crossed the border into Russia. There are also 127 million people in the three adjoining Chinese provinces. At present, 66% or Russia’s oil production and 91% of its gas production comes from fields in western Siberia. But oil analysts estimate that eastern Siberia and the Russian Far East could have 110 billion barrels of oil.

During 2003, China and Japan competed for the right to develop an oil pipeline in Russia for their respective markets. The Chinese formed an alliance with Yukos while the Japanese focused on the government pipeline monopoly, Transneft. The Yukos Company agreed to sell China 300,000 barrels per day starting in 2006, or an amount triple the level of China’s oil imports from Russia in 2003 and six times higher than in 2002. When the Chinese chose Yukos as a partner, it was regarded as Russia’s most successful and transparent oil company. But it was a mistake because Mr. Putin had the CEO of Yukos arrested last October because of his decision to meddle in politics and develop a pro oil industry coalition in the Duma. The Russian government has subsequently announced that it will support the construction of an oil pipeline following the proposed Japanese route. The new pipeline will stretch over 4000 kilometers, coming close to the border of the autonomous region of inner Mongolia. China hopes to add an auxiliary line to its leading oil center in Daqing but it is not yet clear if Russia will approve the project. Russia will be able to satisfy the new demand for oil only by developing oil deposits in eastern Siberia closer to the Chinese border than its current large fields. Although China perceives that Russia stole land from it during the 19th century, it has not been actively demanding the return of lost territory. The great risk to Russia’s territorial security could ultimately prove to be American and European trade policy. China currently plans to pay for its commodity imports by exporting a growing volume of manufactured goods. If the U.S. and Europe attempt to curb China’s exports, she will have no way to pay for her rapidly growing imports of oil and other raw materials. In such a scenario, China could decide that the most attractive way of securing adequate energy supplies would be to reclaim lost territory in the Russian far east with large oil reserves. Russia could then be the long term casualty of protectionist trade policies in North America and Europe.

While Russia has been ambiguous about its relationship with China, Kazakhstan has given China a great welcome. The Chinese National Petroleum Company has invested $700 million in oil development. China is about to spend $3 billion on a new pipeline from Atasu to China’s Xinjoang Uygue autonomous region. The three section trunklune of over 3000 kilometers will ultimately be able to deliver 20 million tonnes of Caspian Sea crude to western China. As Kazakhstan currently exports 70% of its oil via pipelines passing through Russia, it is anxious to develop new markets.

China is also planning large natural resource projects in Mongolia. China has signed a letter of intent to develop a copper mine and committed $50 million open a new zinc mine. The Mongolian President has also invited Chinese companies to drill for oil in the country. Three are 1,000 Chinese companies with operations in Mongolia. China is showing its support by providing crews to pave Mongolia’s roads and offering a $300 million loan for other forms of development. During the Cold War, Mongolia was a Soviet satellite but China’s need for raw materials will now lead to a close alliance between Beijing and Ulan Bator.

The other regions which could be vulnerable to Chinese territorial claims are the Senkakus Islands (the Chinese call them Daiyous) and Spratly Islands in the South China Sea. It is widely perceived that both sets of island could provide access to large oil reserves. In the 1970s, Deng Xiaoping had discouraged China from pursuing territorial claims in its neighborhood. He said that conflicts over the islands should be “left for the next generation”. In November 2002, Asean and China concluded a treaty that called on all claimants to avoid actions that might heighten tensions in the flashpoint region. This was further reinforced last winter by a nonaggression pact with Asean. But in recent months, China has once again begun to speak out about its claims. It has criticized Vietnam for attempting to give oil drilling rights to foreign companies and promoting tourism on the Spratly Islands. It recently allowed a group of Chinese nationalists to land on the Senkaku Islands and plant a flag. The Chinese were promptly arrested by the Japanese police and then sent home to a hero’s welcome. In early July, the Chinese foreign ministry publicly warned Japan not to explore for natural gas near the disputed islands. The official said, “Japan should consider the bigger picture of maintaining relations between the two countries and should consider stability in the East China Sea. Japan should proceed with caution.” The new regime of Hu Jintao has been constantly stressing to other Asian countries that China’s emergence as a great power will not threaten them, but China’s concern about securing adequate oil supplies could encourage Beijing to become more assertive again over territorial claims in regions which adjoin large oil supplies. As with Russia, the ultimate determinant of how far China goes in pursuing its claims may depend upon western trade policy. If the U.S. and Europe make it difficult for China to pay for oil imports with exports of manufactured goods, China could decide to pursue a more aggressive foreign policy to obtain oil from disputed territories.

China has launched several major initiatives to obtain oil reserves in Africa. China entered the Sudan during the late 1990s and now has large investments there. In 2003, the China National Petroleum Corporation completed development of a major new oil field with productive capacity of 10 million tonnes per year, a refinery processing 2.5 million tonnes per year, and a 1,506 km pipeline. CNPC has recently expanded into Algeria, Niger, and Chad while its rival Sinopec has moved into Gabon, Egypt, and Nigeria. Sinopec is also negotiating for a stake in Grynberg’s large concession in the Central African Republic. China International and United Petroleum Corporation recently signed a service contract with the Nigerian Petroleum Development to develop two new oil concessions in the shallow waters of the River State and to import 50,000 bpd. Sinopec has turned Angloa into China’s third largest source of oil after Saudi Arabia. China tried to strengthen the relationship by also offering Anglo a $2 billion concessional loan during early 2004. CNPC hopes to invest in a new $3.2 billion refinery project at Lobito and to develop joint ventures with Chevron Texaco in developing some of Angola’s deep water offshore blocks. Petro China has also recently formed a venture with Diamondworks to market petroleum in several west African countries. In January – February 2004, President Hu Jintao visited Egypt, Gabon and Algeria to discuss new energy ventures. In Egypt, China agreed to provide new technical expertise and develop new ventures in exploration, production, refining, and marketing.

In Gabon, Hu Jintao signed a contract for 1 million tonnes of oil imports per year. After the president left, Sinopec signed an agreement to participate in exploration of new oil bocks both offshore and onshore. China began investing in Algeria two years ago and the Hu Jintao visit further strengthened the relationship. In 2002, Sinopec signed a $525 million contract to develop the Zarzaitine oil field in the Sahara Desert and to build a refinery nearby. In 2003, CNPC signed a deal worth $325 million to buy several refineries and import oil from Algeria. After the Hu Jintao visit, CNPC signed a new agreement to establish a permanent joint committee to promote more energy cooperation with Algeria, to give CNPC new exploration rights, and to develop new pipelines as well as expand existing refineries. In the period January-July 2003, Africa provided 13,137 million tonnes of China’s total imports of 50,639 million tonnes. Anglo supplied 6,237 million tonnes, Sudan provided 3,429 million tonnes, and Equatorial Guinea supplied 1,193 million tonnes. The tremendous Chinese focus on Africa today guarantees that the continent will become a progressively more important supplier of raw materials to China.

As a result of China’s huge energy needs, the government is also giving serious consideration to developing more nuclear power. China now has nine generators operating in Zhenjiang and Guangdong. Two are under construction in Zhenjiang. Proposals to build another four should be approved within two months. The London based World Nuclear Association says that China will probably build another 26 generators in eight different provinces. Some government officials have suggested that China could become the world’s largest consumer of nuclear power by 2050. The government is anxious to promote more nuclear power because during 2004 24 of China’s 31 provinces have been suffering from electricity shortages. China is importing a large quantity of new generating equipment from Europe and the U.S. to eliminate the shortages but its current growth curve for electricity demand is so high that nuclear power is clearly a strategic alternative to its long-term needs.

Secondly, China is likely to emerge as a more important player in financing the development of natural resources. The Chinese regard ownership as an important element of control. In the U.S., for example, they purchased cutting rights over large tracts of timber land nearly twenty five years ago. China’s National Petroleum Corporation has spent over $40 billion on foreign investments. The big Chinese oil companies are now investing in oil development projects in Indonesia, Latin America, Africa, and Australia.

In the past, the largest players in the development of global commodity production have been companies from the U.S. and the British Commonwealth, especially Canada, Australia, and South Africa. These companies are currently holding negotiations with China about both investing in new Chinese projects as well as forming joint ventures with Chinese firms to develop mines in other countries. Rio Tinto has several joint ventures with China in Australia.

Chinese firms could also emerge as competitors with American and European firms. Saudi Arabia, for example, recently allowed Chinese firms to invest in its new natural gas industry while excluding American firms from the project. The Saudis were attracted to China because it could be a huge market and there were no tensions over issues such as Israel and terrorism. China also supplied intermediate range ballistic missiles to Saudi Arabia several years ago and collaborated in a Saudi financed project to develop nuclear power in Pakistan. If the U.S. relationship with the Saudis continues to deteriorate, China could emerge as a more important player in providing them with security.

China recently announced a $5 billion (U.S.) takeover bid for Canada’s largest mining company, Noranda. Noranda has large copper mines as well as a 60% shareholding in Falconbridge, one of the world’s leading nickel producers. The takeover bid drew immediate criticism from conservatives in Canada alarmed at the prospect of China controlling large nickel reserves. They point out the large mines in Sudbury, Ontario were originally developed to supply nickel to the U.S. Navy because the U.S. has no nickel deposits and that it is dangerous to allow China to purchase them through Falconbridge. Falconbridge mines nickel, in Ontario, Quebec, and New Caledonia, as well as having a large smelter in Norway. The Canadian government is reluctant to challenge the bid because of its desire for good economic relations with China but the controversy does indicate that China’s new role in the commodity market is promoting debate about military and security concerns, not just economic issues. Many Canadians are suspicious of China because of its policies in the area of human rights, Tibet, and Taiwan. The Noranda bid has revived those concerns as well as provoking discussion about the military importance of Canada’s large nickel reserves. What remains to be seen is whether the deal will actually close. Since the deal was announced, there has been a significant appreciation of the Canadian dollar which could raise the price for Mini Metals to levels which will be commercially unacceptable.

Thirdly, China’s huge demand for raw materials could produce a sustained improvement in the terms of trade of the developing countries. During the era since World War Two, the developing countries have often suffered from declining commodity prices, especially during periods of recession in the U.S. economy. There were major developing country debt crises during the early 1980s because of a severely restrictive U.S. monetary policy which depressed commodity prices. Russia also defaulted on her debt during 1998 because of a large drop in the oil price which crippled tax revenues. In the future, it is possible that Chinese monetary policy will play a more critical role than American monetary policy in determining commodity prices. What remains to be seen is whether China will be more sensitive to her global monetary role than the Americans were in the past.

Fourthly, China is now going to emerge as an important factor in the conduct of monetary policy by the G-7 countries. During the past year, China’s boom has produced a 25% increase in America’s crude materials price index. In the past, such large increase in commodity prices might have provoked the Federal Reserve to raise interest rates. But the Fed has not tightened in part because China’s exports of manufactured goods are helping to restrain America’s consumer price index. Wal-Mart, for example, is now purchasing $14 billion of goods from Chinese companies and $26 billion from American, Japanese, and Korean companies using China as an export base. The import of low priced goods from China is limiting the ability of American firms to raise prices despite rising raw material costs. But at some point, rising commodity prices could set the stage for higher inflation and force central banks to raise interest rates. In the past, the G-7 central banks focused primarily on their own business cycles and the American economy. In the future, they will have to take account of how fluctuations in the Chinese economy are affecting global commodity prices.

During much of China’s history, it was difficult for western countries to pay for their imports of silk and porcelain because China did not want western products. The British resolved this problem by selling opium to China during the early 19th century. In the modern era, there are no such constraints on China’s trade. In contrast to the era before the industrial revolution, China has an immense appetite for both manufactured goods and commodities from the rest of the world. China plans to expand exports of manufactured goods in order to pay for imports of commodities. The great risk to this equilibrium is trade policy in the industrial countries. Some countries want to impose trade barriers on Chinese imports.

In fact, it would not be an exaggeration to suggest that the financial underpinning of the Bush administration’s economic and foreign policies is the fact that the east Asian central banks now have $2.0 trillion of foreign exchange reserves which are nearly 90% invested in U.S. government securities. It is the willingness of the east Asian central banks to fund the U.S. budget deficit which has permitted the Bush administration to pursue a highly expansionary fiscal policy without any adverse consequences for the domestic bond market. The Bush administration is so concerned about manufacturing job losses that it does not want to acknowledge its unusual financial dependence upon east Asia, but the reality is that their currency intervention has become a de facto form of burden sharing for the Bush foreign and defence policies. China is anxious to maintain a stable exchange rate because of concerns about the stability of its financial system and the fact that it has lost ten times as many manufacturing jobs as the U.S. during the past six years because of the restructuring of its state owned enterprises.

China’s economic takeoff and new role in the global commodity markets has occurred so quickly that the U.S. and other countries have not yet fully come to terms with it. The U.S. and other countries are extremely sensitive to the risk of job losses resulting from China’s export growth, but they have not devised a strategy for coping with the larger consequences of China’s new role. There are many questions which loom. If China accounts for 30-40% of global metal consumption in fifteen years, what will be the consequences for commodity prices and trade flows? Will China become the dominant trading partner of countries as diverse as Australia, South Africa, and Brazil? If China assumes such a role, will she attempt to develop a larger blue water Navy to protect the ships providing critical supplies of oil, iron ore, and other raw materials? Will China become a major investor in the developing countries in order to finance the development of new natural resource projects? Will China follow in the footsteps of the U.S. and Britain by intervening in the domestic political affairs of countries which become her primary commodity suppliers or recipients of investment? Will China offer arms supplies to developing countries in order to enhance its access to their commodity production? Is the intervention in the Sudan only the first step to a much larger Chinese military role all over the third world?

The U.S. has clashed with China in the past over its policy in the Middle East. During the late 1990s, China offered to sell military technology to Iran in order to develop a relationship for enhancing its access to energy supplies. The U.S. protested and China ultimately backed down. But as a result of China’s new circumstances, the temptation will be strong for China to pursue a variety of diplomatic strategies for enhancing its access to raw materials. The challenge for the U.S. will be to demonstrate that it can accommodate China’s need for raw materials and play a cooperative role in helping Beijing to assure adequate raw material supplies. The U.S. has always supported a policy of open sea lanes and protecting private property. The U.S. should now reassure China that it will use its own military forces to assure the safety and security of Chinese vessels and others carrying critical raw materials. The U.S. should also attempt to collaborate with China in developing a common policy for third world countries. As with the Sudan, it is not difficult to imagine countries as diverse as the Congo, Papua New Guinea, or even Saudi Arabia turning to China for help in suppressing rebellions or protecting political elites. In the past, the U.S. would have reacted adversely to the deployment of Chinese troops anywhere. But as a result of China’s new role in the global commodity markets, the U.S. will have to recognize that China has new security concerns which it should attempt to manage rather than simply reject.

China announced a major breakthrough in its third world relationships during mid-April when it said that it would join the Nuclear Suppliers Group. China’s application to join the 40 nation NSG is an important recognition that it should join other leading countries in regulating proliferation of nuclear weapons. China also wants to improve its own access to nuclear technology from the United States because of its plans to increase the role of nuclear power within China. As a result of this decision, China will no longer be able to offer Middle Eastern countries access to nuclear technology as a quid pro quo for oil supplies.

In the 1950s and 1960s, the Chinese relationship with the third world was heavily influenced by the 1954 Bandung summit conference in Indonesia. At that summit, the leaders of newly independent countries of Asia and Africa pledged to work together on behalf of a non-aligned third world. During the 1960s, China helped Zambia to cope with Rhodesian trade sanctions by constructing a railway from Dar Es Salam to Lusaka. In the future, China will have a totally different relationship with the developing countries. China will become their primary export market as well as being an investor in their natural resource industries. China’s negotiations with them over commodity contracts will have a major impact on their terms of trade and national income. If commodity prices fall sharply and they experience recessions, they could blame China whereas in the past they would have blamed American imperialism.

At present only a few things appear to be certain. The transformation apparent in the commodity markets during the past year is likely to persist for some time. China will become an increasingly more important influence on commodity prices than the old industrial economies of North America, Europe, and Japan. China could drive commodity higher prices as she develops larger reserves of oil, grain, and other critical raw materials. When China finally has an investment slowdown, commodity prices will decline. But as China is unlikely to experience a full scale recession anytime during the next decade, there will be a steady, if not always spectacular growth in her demand for raw materials. By 2015-2020, her share of global metal consumption could be 50% larger than America’s.

Such a large change in the composition of global commodity demand and trade flows will have political consequences. China is going to develop far more intimate relationships with many developing countries than have existed before. She is going to redefine her national security strategy to include protection of critical raw material supplies. It is too soon to speak of a new era of Chinese imperialism in the third world, but China will certainly play a more influential role in the affairs of many developing countries. The U.S. has been so obsessed with the issue of trade that it has not developed any long-term strategy for managing the consequences of China’s new role. The U.S. can regard China’s new role as an opportunity for cooperation on many geopolitical issues or as a further threat to its own economic interests. There is no way to predict exactly how policy makers will respond to China’s new status. At this point only one thing is certain. China’s new role as the world’s largest consumer of many industrial commodities will force everyone to rethink their assumptions about foreign policy, military policy, and even the conduct of monetary policy during the early decades of the 21st century.


December 4, 2003. China’s huge thirst for oil set to change world’s energy flows. Asian Wall Street Journal.

With its factories working overtime, and its consumers on course to buy almost 2 million cars this year, China is developing a world-class thirst for oil. And its hunt for steady supplies is reshaping the global energy scene.

China – which this year surpassed Japan as the No 2 petroleum user after the US – is increasing its oil purchases even faster than it is pumping up its brawny economy. Imports for the first 10 months of 2003 were up 30 per cent from year-earlier levels. The International Energy Agency expects imports to double to some 4 million barrels a day by 2010. By 2030, China is expected to be importing about 10 million barrels a day, roughly what the US imports now. Domestic oil output, meanwhile, is flat.

From Houston to London to Moscow, oil companies are looking to secure market share in China, as China roams the world looking for oilfields to develop. And strategists are struggling to predict what China’s rise as a super-buyer will mean for the oil market, the environment – and world politics.

Some fear that China, which doesn’t have large strategic reserves of fuel, might grow so desperate for oil that it would battle the US for influence in the Middle East or even trade weapons technology to alleged terrorist states.

“China is having an incredible influence on energy flows, not just in Asia but on a worldwide basis,” Peter Davies, chief economist at BP, told reporters on a recent trip to Russia, from where BP hopes to supply China with Siberian gas. “The whole centre of gravity of the world energy market is changing.”

This year and next, China is expected to account for about a third of the increase in global oil demand.

Chinese demand is also making geopolitical waves in the US. Last month, the US-China Economic and Security Review Commission, a committee of congressional appointees, debated how China’s thirst for oil would affect US access to energy supplies. Last year, the Pentagon reviewed a report on what it would mean for US national security if the Chinese and Saudis grew closer. Saudi Arabia, the world’s largest exporter, is negotiating to build a huge refinery in China with Exxon Mobil. The desert kingdom even has begun giving Chinese-language lessons to its oil officials.



Shanker, T., et al. March 1, 2005. N U.S. Lawmakers Warn Europe on Arms Sales to China. New York Times.

Senior members of Congress from both parties emerged from a meeting with President Bush on Tuesday warning Europe that if it lifts its ban on arms sales to China, the United States may retaliate with severe restrictions on technology sales to European companies.

The warning came after Mr. Bush, on his trip to Europe last week, twice cautioned the Europeans not to lift the restrictions, in place for 15 years. His insistence was based, at least in part, on a new American intelligence assessment that Beijing is rapidly becoming better equipped to carry out a sophisticated invasion of Taiwan and to counter any effort by the United States to react to such an attack, administration officials and intelligence analysts say.

After the White House meeting on Tuesday, Senator Richard G. Lugar, the Indiana Republican who is chairman of the Foreign Relations Committee, said that if the ban is lifted – as European leaders have said they plan to do in coming months – Congress could react with “a prohibition on a great number of technical skills and materials, or products, being available to Europeans.” The ranking Democrat on the committee, Senator Joseph R. Biden Jr. of Delaware, called a lifting of the ban “a nonstarter with Congress.”

Their statements reinforce warnings that Mr. Bush and Secretary of State Condoleezza Rice made in meetings with Europeans over the past several weeks that the weapons sales would amount to a transfer of even more sophisticated military technology to China. But European officials say that the concerns are overstated, and that they are considering a compromise proposal that would keep advanced technologies from being exported.

Although Mr. Bush and Ms. Rice have spoken publicly about the sale of heavy weapons, Pentagon officials say the biggest concern is the technology that goes with it, including radar and battlefield communication systems that could take China’s rapid military buildup to a new level. And to make their case, the officials have begun to discuss how such technology would give China an increased ability to intimidate Taiwan with the threat of invasion if it moves too aggressively toward independence.

The motivations for the officials to discuss this intelligence in interviews over the past two weeks are varied, and certainly include concerns about how the Chinese buildup could affect American security interests. But the discussion also comes as Congress takes up Mr. Bush’s new spending proposals, which devote a majority of supplemental funding to land forces and the war in Iraq, while missions related to perceived threats from China fall mainly to the Navy and the Air Force.

In addition, some administration hawks are concerned about China’s rapid growth as a military power in the Pacific at a time that American attention is focused on the Middle East.

The new intelligence reports indicate that since Mr. Bush came to office, China has raced ahead with one of the most ambitious military buildups in the world – including building 23 new amphibious assault ships that could ferry tanks, armored vehicles and troops across the 100 miles to Taiwan, and 13 new attack submarines.

“Their amphibious assault shipbuilding alone equals the entire U.S. Navy shipbuilding since 2002,” one intelligence official said.

The official said Chinese military purchases abroad and domestic production of ships and warplanes “definitely represents a significant increase in overall capacity.” At the same time, any advances in radar and communications ability would improve how rapidly and effectively those ships and planes could support an invasion or counter American moves in the region.

Military experts in European capitals and in Washington say they do not dispute the American intelligence reports on the growth in quality and quantity of Chinese arms. But European political leaders argue that the sanctions were placed to punish China because of its killing of pro-democracy demonstrators in Tiananmen Square 16 years ago, not because of its military power.

Now that a new generation of leaders has taken over in Beijing, they say, the specific cause of the sanctions is removed.

In contrast, Japan has sided with the United States in asserting a growing Chinese threat to Taiwan, publicly inserting those concerns for the first time into a joint security statement issued in recent days.

The latest intelligence reports give the fullest sense to date of what China has actually fielded in the past several years, and how, as the new director of central intelligence, Porter J. Goss, recently told Congress, the weaponry could “tilt the balance of power in the Taiwan Strait.”

The United States has deliberately left vague whether or how it would defend Taiwan in the event of invasion. The last time a crisis erupted in the region, President Clinton put a carrier near the Taiwan Strait – but not inside it – as a caution to Beijing.

That event prompted a rethinking of military strategy in Beijing, China experts say. One intelligence official noted that China’s military expansion has tried to fill gaps that have been identified in a range of Pentagon reports and public American intelligence estimates.

The intelligence official said: “What the Chinese have systematically done is look at what other people have said about them, and said, ‘Fine. I don’t have a credible amphibious capability. Well, I’m going to build one. I don’t have a credible surface force that can provide adequate air cover and surface-to- surface strike capability against incoming fleets. Fine, I’ll build that. Submarines worry you? Fine, I’ll buy them or I’ll build them.’ ”

“It’s a modernization across the force,” the official added.

China’s growing submarine fleet, which includes new nuclear- and conventional-powered vessels, helps China patch a major vulnerability: an inability until now to control the Taiwan Strait. This larger submarine fleet, even if less effective than its American counterpart, would vastly complicate any effort by Washington to intervene. Past calculations of how quickly the American aircraft carrier fleet could safely move into the area are even now being rewritten to include new estimates of the patrolling range of the new Chinese submarine fleet.

In a written statement on “Current and Projected National Security Threats to the United States” submitted to the Senate Select Committee on Intelligence earlier this month, Vice Adm. Lowell E. Jacoby, the director of the Defense Intelligence Agency, discussed an even broader nature of the Pentagon’s concern.

“In addition to key Taiwanese military and civilian facilities,” Admiral Jacoby said, “Chinese missiles will be capable of targeting U.S. and allied military installations in the region to either deter outside intervention in a Taiwan crisis or attack those installations if deterrent efforts fail.”

Admiral Jacoby, in unclassified testimony, predicted that by 2015, the number of Chinese nuclear warheads “capable of targeting the continental United States will increase severalfold.”

For now, though, China’s capabilities are not considered a threat to the United States mainland; China still lacks an oceangoing navy that could rival America’s presence in the Pacific, while America has no lack of nuclear missiles that can strike China from land or from submarines.

Experts also say it is clear that China will be able to proceed with its modernization plans with or without European weapons, though its progress may be slower. China has purchased destroyers, as well as many other weapons, from Russia, its main supplier. At the same time, it is modernizing its fleet of warships, built at a rapidly growing chain of domestic shipyards that is financing its own expansion by taking an increasing share of commercial shipbuilding contracts in Asia, according to United States government assessments.



Shanker, T. June 3, 2005. Rumsfeld Issues a Sharp Rebuke to China on Arms. New York Times.

Defense Secretary Donald H. Rumsfeld, in an unusually blunt public critique of China, said Saturday that Beijing’s military spending threatened the delicate security balance in Asia and called for an emphasis instead on political freedom and open markets.

In a keynote address at an Asian security conference here, Mr. Rumsfeld argued that China’s investment in missiles and up-to-date military technology posed a risk not only to Taiwan and to American interests, but also to nations across Asia that view themselves as China’s trading partners, not rivals.

He said no “candid discussion of China” could neglect to address these military concerns directly, and criticized China for not admitting the full extent of what he described as its worrisome military expansion.

“Since no nation threatens China, one wonders: why this growing investment?” Mr. Rumsfeld asked. “China’s defense expenditures are much higher than Chinese officials have publicly admitted. It is estimated that China’s is the third-largest military budget in the world, and now the largest in Asia.”

The United States has accused China of manipulating the value of its currency in order to increase exports, and of exerting heavy-handed pressure on Taiwan.

A joint warning from the American and Japanese defense and foreign ministers has rankled Chinese leaders, as has the Bush administration’s insistence that Europe must not ease curbs on arms sales to China.

Mr. Rumsfeld, for his part, has long taken a tough stance on China.

In recent weeks, American officials have compiled reports detailing how China has carefully analyzed the strengths and weaknesses of the United States military to focus its growing spending on weapons systems that could exploit perceived American weaknesses in case the United States ever responds to fighting in Taiwan.

These military and intelligence officials say China has purchased or built enough amphibious assault ships, submarines, fighter jets and short-range missiles that pose an immediate threat to Taiwan and to any American force that might come to Taiwan’s aid.

The Pentagon’s report to Congress on China is two months late, and one administration official said drafts of the document have been written, circulated and re-written as officials try to strike the right balance between warnings to Beijing and praise of its help on North Korea and its openness to investment.

“Pyongyang’s nuclear ambitions threaten the security and stability of the region, and indeed the world,” he said. “President Bush and the other four leaders have urged the regime to return to the six- party talks. The United States also urges the regime to embrace the openness and freedom that have helped so many of its neighbors thrive.”

Mr. Rumsfeld described the American military in the region as poised to battle terrorism and the proliferation of biological, chemical and nuclear weapons.


Sevastopulu, D., et al. May 24, 2007. US fears over China nuclear weapons. The Financial Times.

The US is increasingly concerned about China’s deployment of mobile land and sea-based ballistic nuclear missiles that have the range to hit the US, according to people familiar with an imminent Pentagon report on China’s military.

The 2007 Pentagon China military power report will highlight the surprising pace of development of a new Jin-class submarine equipped to carry a nuclear ballistic missile with a range of more than 5,000 miles. Washington is also concerned about the strategic implications of China’s preparations later this year to start deploying a new mobile, land-based DF-31A intercontinental ballistic missile that could target the whole US. Robert Gates, US defense secretary, on Thursday said the report would not exaggerate the threat posed by China. “It paints a picture of a country that is devoting substantial resources to the military and developing…some very sophisticated capabilities.

The report also outlines concerns about the build-up of missiles across the Taiwan Strait, China’s recent anti-satellite missile test and its development of technologies to deny access in space.

US experts on the Chinese military have been surprised by the pace of development of the nuclear forces, and particularly the Jin program. The Pentagon believes that China is developing five Jin submarines. One is already being tested at sea and could become operational next year. “The Chinese have maintained that they have a ‘no first use’ policy [for nuclear weapons] and that they have a minimal deterrent policy, which means they have only enough nuclear capability to retaliate,” said Michael Green, former White House senior Asia adviser to President George W. Bush. “But open source journals and discussions and their own modernization suggest that they are possibly developing capabilities for a more flexible use of nuclear weapons, and survivability and tactical uses that would call into question this declared policy.

In 2005, Chinese General Zhu Chenghu fueled US concerns that China might be changing its strategic stance when he told journalists that it might have to use nuclear weapons against the US if attacked during a confrontation over Taiwan. Chinese officials later restated the country’s “no first use” policy and have privately played down Gen Zhu’s influence. Some analysts have also suggested that the Chinese move could be partly in response to US plans to develop a ballistic missile defense system. Russia has recently raised concerns about plans by the US to place missile interceptors in Europe.


War between Japan and China?

Also see: Chalmers Johnson. March 2005.   No Longer the “Lone” Superpower: Coming to Terms with China. JPRI Working Paper No. 105. http://www.jpri.org/publications/workingpapers/wp105.html#t3536

Tisdall, S. January 18, 2005. Sino-Japanese ‘cold war’ stirs new tensions. The Guardian.

When Nobutaka Machimura, Japan’s foreign minister, asked Israel to halt weapons sales to Japan’s neighbours at the weekend, there was little doubt which particular neighbour he had in mind. And when Japan’s defence ministry recently drew up contingency plans to deploy 55,000 troops in the event of an invasion of disputed islands off southern Japan, there was no question who the most likely invader would be.

While the world watches China’s rapid rise towards superpower status with awe, Japan, China’s old enemy, watches with foreboding.

It is almost inconceivable that Japan and China would ever fight again. The two countries are increasingly economically interdependent. But relations are certainly deteriorating.

Political tensions, territorial rivalries, competition over energy resources, and China’s military build-up, dramatised by a recent, illegal incursion by a nuclear submarine, provide the ingredients for a 21st-century oriental remake of the cold war.

Japan’s brutal 1930s wars of conquest are far from forgotten or forgiven in China.

But anti-Japanese nationalist sentiment is now being exploited to boost the Communist leadership’s waning ideological authority.

Chinese anger focuses on the visits of the Japanese prime minister, Junichiro Koizumi, to Tokyo’s Yasukuni shrine, where war criminals are commemorated alongside Japan’s war dead. China says this proves Japan has not truly repented its militarist past.

Beijing refuses to hold bilateral summits until Mr Koizumi kowtows and for this, among other reasons, is opposing Japan’s bid for a UN security council seat. The antipathy is mutual.

A survey last year found that 58% of Japanese (like most Taiwanese) fear China’s long-term intentions.

Japan’s latest defence review for the first time named China, along with North Korea, as a potential threat.

Meanwhile, Mr Koizumi has suggested ending economic aid, which Beijing regards as its right in lieu of war reparations.

As Mr Machimura made clear, Japan wants all countries, not just Israel, to stop arming China. This includes Britain and the EU, which are considering lifting an arms embargo imposed after the 1989 Tiananmen Square massacre.

But Japan’s response to China’s rise has several other dimensions. Before visiting Israel, Mr Machimura went to Moscow.

Russia, another of China’s old enemies, shares Tokyo’s worries about Beijing’s regional ambitions. Bilateral trade is expanding, with Japanese investment flowing into Russia’s energy and automotive sectors. Military contacts are also growing.

Moscow announced this month that a new £6bn oil pipeline from eastern Siberia would run to the Pacific coast, allowing access to Japan, rather than to Daqing, in north-east China. Russia’s president, Vladimir Putin, is expected to visit Tokyo soon. And high-level talks have even recommenced over a 60-year-old territorial dispute.

The foreign minister, Sergei Lavrov, said Russia wanted to clear away old disagreements. “The main thing now is to seek full cooperation in all spheres,” he told Mr Machimura.

This is a big change. Exactly 100 years ago this month, Japan was destroying Russia’s Pacific fleet. Hostilities continued through much of the 20th century.

Japan’s unusual political and diplomatic assertiveness is being matched militarily despite its post-war pacifist constitution.

As a study by Christopher Hughes, published by the International Institute for Strategic Studies, makes clear, the old rules are being bent as Japan confronts not only China but also problems posed by terrorism, nuclear proliferation, and the weakening of an over-stretched America’s defensive shield.

This national self-assertion encompasses landmark decisions to acquire ballistic missile defences and hi-tech force capabilities; send troops abroad (as in Iraq); and pursue military collaboration with South Korea, Australia and some south-east Asian countries.

“All this activity has been set against the background of sharpened domestic debate that challenges many post-war security taboos,” Dr Hughes writes.

“Japan’s policy-makers are questioning the self-imposed ban on Japan’s exercise of the right of collective self-defence … The prohibitions and principles that constrain Japan’s exercise of military power [are under] ongoing investigation.”

In other words, as China stands up, so too again may Japan.

Kristof, N.D. December 20, 2003. The China Threat? New York Times.

Is China a threat to the rest of the world? Perhaps, for rising powers have always spelled trouble for their neighbors, even in the case of democracies like Athens (the Peloponnesian War) and the U.S. (we managed to invade Canada and Mexico in the 1800’s).

What troubles me is the growing nationalism that the government has cultivated among young people. Americans saw a hint of that when enraged mobs attacked our embassy in Beijing after the U.S. bombed the Chinese Embassy in Belgrade in 1999, and when Chinese students reacted to the horror of 9/11 by filling Internet chat rooms with delighted cheers of shuang — roughly equivalent to “Wow, so cool!”

But it’s in attitudes toward the Japanese that we see a leading indicator of the instability that blind nationalism can cause. This fall, three Japanese students in the central Chinese city of Xian performed a bawdy skit, wearing red bras over T-shirts and throwing the stuffing at their audience — and word spread that the Riben guizi, Japanese devils, were mocking China. So a mob of 1,000 people rampaged through town, looking for any Japanese to attack. In the same vein, fury had erupted around the country a few weeks earlier because of reports that Japanese businessmen had engaged in an orgy with Chinese prostitutes in the southern city of Zhuhai.

The Chinese rage was hypocritical in a country where hundreds of thousands of prostitutes blatantly ply their wares — in Zhengzhou last year, an army of prostitutes practically battered down my hotel room door as I cowered inside. Even the Chinese recounting of history has become hysterical.

Take the Rape of Nanjing in 1937, which was so brutal that there’s no need to exaggerate it. One appalled witness in the thick of the killing, John Rabe, put the death toll at 50,000 to 60,000. Another, Miner Searle Bates, estimated that 12,000 civilians and 28,000 soldiers had been killed. The Chinese delegate to the League of Nations at the time put the civilian toll at 20,000. A Communist Chinese newspaper of the period put it at 42,000. Yet China proclaims, based on accounts that stand little scrutiny, that 300,000 or more were killed. Such hyperbole abuses history as much as the denial by Japanese rightists that there was any Rape of Nanjing at all.

It nurtures nationalism by defining China as a victim state, the world’s punching bag, that must be more aggressive in defending its interests. What does this add up to? The rising nationalism warps Chinese decision-making and risks conflicts with Japan over, for example, the disputed Senkaku/Diaoyu islands.

It also forces the government to be tough in international disputes — particularly in the case of Taiwan, where a miscalculation could conceivably lead to a war with the U.S. “Some Chinese military leaders are saying that Japan is secretly behind Taiwan’s moves toward a referendum and independence,” warned a well-connected Chinese who knows that this is nonsense.”They say it is all a Japanese plot to steal Taiwan from China.”

The reasons for rising Chinese nationalism are complex and include a justified anger at Japan’s reluctance to apologize for war atrocities. But one factor is the way the Chinese government has been pushing nationalist buttons in an effort to create a new national glue to hold the country together as ideology dissolves. By constantly excoriating the Japanese nationalists of the 1930’s, they are emulating them. One of the lessons of 1930’s Japan and Germany is that ferocious nationalism is a real global security risk, and it’s a matter that the U.S. and other countries should respectfully raise with President Hu.

To their credit, some farsighted Chinese intellectuals are calling for changing China’s “victim mentality,” recognizing that it is one of the greatest obstacles to China’s maturing into the global leader that it should be. Meanwhile, we in the West are bashing China, unfairly and demagogically, over its exports. But we’re missing the risk in China’s rise. The menace isn’t in its trade policies, but in its nationalist psychology.

Additional reading

Liu, H.C.K. June 16, 2005. The coming trade war and global depression. Asia Times. http://www.atimes.com/atimes/Global_Economy/GF16Dj01.html

Spencer, R. November 19, 2004 Tension rises as China scours the globe for energy. Telegraph, UK.  http://news.telegraph.co.uk/news/main.jhtml?xml=/news/2004/11/19/wchina19.xml&sSheet=/news/2004/11/19/ixworld.html

Giry, S. November 11, 2004 CHINA’S AFRICA STRATEGY. Out of Beijing. The New Republic.

Perlez, J. August 28, 2004. Across Asia, Beijing’s Star Is in Ascendance. New York Times.

French, H.W. March 28, 2004. China Moves Toward Another West: Central Asia. New York Times.

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Book Review of Kleveman’s 2003 “The New Great Game: Blood and Oil in Central Asia”

[I posted this book review at yahoo group energyresources back in 2004 when the average American still thought the Iraq war was about weapons of mass destruction. It is still relevant today.  Alice Friedemann  www.energyskeptic.com ]

Lutz Kleveman. 2003. “The New Great Game: Blood and Oil in Central Asia”. Atlantic Monthly Press.

Countries with unexploited oil are rare these days, often hard to get to and dangerous to visit. Lutz Kleveman takes you on a wild ride in and out of countries near the Caspian Sea that hope to become rich by exporting their oil and gas (which ER readers know didn’t turn out to be as plentiful as hoped).

Many of these countries are newly liberated from the Soviet Union, and eager to distance themselves. Americans have been allowed to build military bases and have a first crack at the oil as a shield from Russian involvement.

Corruption is widespread. One of the reasons Russia invaded Chechnya was that the black market in oil had gotten out of hand. Russian mafia absconded with vast amounts of stolen crude oil, and the refineries were selling it out the back door. Oil accounted for two- thirds of the revenues coming in to Chechnya, about $900 million in 1993.

Some countries are risky to visit. In Georgia, local bandits find good money can be made by kidnapping UN employees. A few days after Keleveman arrived by UN helicopter, guerillas shot down this copter. Mines are buried in fields everywhere.

Kleveman paints vivid pictures of the decline of civilization as he makes his journey. There are horse-drawn carts, men dragging wheelbarrows and hauling wood, bombed out ruins, and empty promenades at resort towns. The landscape alone brings certainty that this destruction will repeat, and he also weaves the grim history of Stalin and other leaders into the narrative, their past deeds and the wasteland of the present guarantee future unrest and remind the many inclined towards blood feuds to never forgive past injustices. The Chechens certainly haven’t forgotten how Stalin moved a million people to Kazakhstan and Siberia, where they were dropped off without protection in the bitter cold.

In Azerbaijan, fourteen petrochemical factories that provided work for 150,000 people are gone. There were chemical plants, a steel mill and an aluminum factory, which have poisoned the soil as much as anywhere in the former USSR. All the windows are broken, some have collapsing roofs. Kleveman writes “in this apocalyptic postindustrial desert, men and women poke through the rubbish in search of some aluminum scrap that they might be able to sell for a few cents on the black market in Baku”.

The best dictator since Woody Allen’s “Banana Republic” is President Saparmurat Nyazov in Turkmenistan. One day, to find out if his people loved him as much as his ministers told him, he glued on a fake black beard, got in his Mercedes limousine, and drove to the edge of town. He got out and began asking the locals what they thought of their leader. This is a country where no one talks politics, let alone tells a man who’s the spitting image of the President arriving in the President’s limo their true feelings.

Nyazov has named thousands of buildings and streets and even parts of the calendar after himself. His biggest project is a water fountain park. Water games are his passion. He’s gotten labor brigades to construct water fountains of all sizes and fantastic designs in a several square mile park. Every one of them has “animal figures, flamingos, tigers, fish, spewing water. Pebbled paths, lined with palm trees and exotic conifers, crisscross between the fountains”. In the center is the world’s largest water fountain, a huge dark marble pyramid as impressive as those at Giza. Water cascades down the steps.

Best of all are the obscure holidays the President has invented. On melon day, the military makes a huge mountain of tens of thousands of melons. Until dark, the people can eat as many melons as they like.

President Nyazov also offers spiritual guidance to his people. He didn’t think the Bible or Koran were good enough, so he wrote his own book, calling it Ruhnama, which means “The Answer to All your Questions”. Every government office has a weekly study hour to discuss it, and the pink-covered book is part of the mandatory curriculum for all schools and universities.

As you are introduced to country after country, it becomes clear that Americans aren’t as welcome as they think they are. In Kyrgyzstan, a village woman says that she doesn’t like American soldiers treating their village like a zoo where you can feed the children like animals. She doesn’t allow her children to accept any sweets. A local journalist told Kreveman that the locals weren’t happy about the Americans moving in. “The people do not want our country to sacrifice to another great power the independence it has only just gained.”

The advance of Americans into Central Asia also worries the conservative elites in Moscow, who still regard these countries as part of their strategic area. As Russia regains order and grows wealthier from oil revenues, it is likely Putin will once again exert power in this powder keg region, and with both the USA and Russia being nuclear powers, this has potentially larger consequences. As Kreveman points out, we wouldn’t tolerate Russian troops in Mexico for long.

In Afghanistan, he’s told if the USA remains in the country “against the will of the Afghan people, they could meet the same fate as the Russians did”.

Yet it looks as if we intend to stay. Tents are being replaced with long-lasting buildings of concrete. This reflects a shift in American strategy. In 2002, high-ranking officials in the Bush administration began saying that U.S. troops should stay in Afghanistan for more than a decade. When asked how long American troops would stay in Afghanistan, General Tommy Franks said ” for a long, long time”.

Of all the places where conflict and endless war might begin, Pakistan is where I’d place my bets. A nuclear power with 148 million people, many living in poverty and schooled in militant Muslim teachings, surrounded by hostile neighbors strikes me as a bomb about to go off. Soldiers have been in power for most of their 56-year history, sucking up nearly one-fifth of the national budget, the best farmland in the Indus valley, and run the shipping ports, railroads, and so on.

But the military doesn’t have as complete a grip on things as they’d like. Recently the MMA party, an alliance of six Islamist parties has been gaining in political power. One of their leaders , Maulana Samiul Haq likes to shout “Down with Bush!” and “This is a war between Islam and American infidels!” About a third of Pakistani children, mainly from the poorest families, attends Islamic fundamentalist schools. Kleveman asks some Pashtuns why they voted for the MMA. “We hate America, that is why. America is evil. We want their military out of our country!”.

One of the more moderate MMA leaders, Ahmed, recalled “that during the Indian struggle for independence from Britain, people looked to America for inspiration and support. For us, the country was a haven of liberalism and anti-colonialism. Now the Americans have become as imperialist as the British. They make no effort to look for the reasons why they are hated so much. The United States should change its foreign policy because it is not in their interest, as September 11 has shown.” And Ahmed is one of the more moderate Islamist leaders.

The idea we’d be welcomed with flowers and smiles after the Iraqi invasion has got to be one of the stranger fantasies of the Bush administration.

Klevemans closing paragraph reads “These are only the first signs that the U.S. troops’ self-image of “liberators” is far from being shared by most people in the region. Ultimately, this growing hostility against the American presence in Central Asia might decide the new Grate Game’s outcome.

It’s the Epilogue “Angry Young Men” that really kept me from sleeping. A young man in the RUF (Revolutionary United Front) in Sierra Leone (the army was known for chopping off the limbs of thousands of civilians during the country’s 10-year civil war), told Kleveman why he fought for the RUF. “I grew up sick and hungry, never went to school. I had no hope and was angry, so angry. My life was shit and it was going to be short anyway. So I took up a gun to have a bit of fun before I die. I have nothing to lose.”

Kleveman met many young impoverished men who were potential terrorists, very disgusted with the United States’ alliances with their corrupt dictators. This turns them towards militant Islam and “virulent Anti-Americanism”. Below are some excerpts from the epilogue:

“At the end of the Cold War in 1989, America was admired and loved by the Soviet-oppressed peoples of Eastern Europe not only as the leader of the West but as the champion of democracy, civil liberties, and cultural progress. This cultural appeal was perhaps as powerful, albeit more subtle, a weapon in the struggle with the Soviet Union as NATO’s military might.

Today, the United States has lost most of its cultural attractiveness …and is widely hated for its politics….While B-51’s and Cruise missiles inspire fear and hatred, the building of roads, schools, and hospitals would win people’s hearts and minds. Why has the Bush administration not provided sufficient funds to engage in such nation- building in Afghanistan, instead continuing to support regional warlords who tear the country apart and are deeply implicated in the heroin trade? Why has the Bush administration not helped the Husharraf regime in Pakistan to secularize the country’s tens of thousands of Koran schools that continue to churn out America-hating Islamic militants? These are just two randomly chosen examples of the many myopic U.S. policies in the region that are bound to eventually backfire terribly, as did the CIA’s arming of Islamic Mujahideen like Osama bin Laden in Afghanistan in the 1980s.”

The war in Iraq, “while ostensibly waged to disarm Iraq of its alleged weapons of mass destruction, underscored the fact that the new Great Game over the oil fields and pipelines in Central Asia gives but a foretaste of future energy wars over the world’s remaining oil and gas resources”.

“Most international lawyers see the invasion of Iraq, a sovereign Arab country, as a violation of the UN Charter of 1945, which prohibits aggressive military action unless provoked by an attack or authorized by the UN Security Council.”

“By opening the Iraqi Pandora’s box, the Bush administration also puts at risk the few successes in the war on terror. The invasion and possible occupation of a Muslim country, resented as yet another attack on Islam and an imperialist bid to control the region’s oil reserves, will inevitably fill the ranks of Al Qaeda in the region, increasing, not decreasing, the threat of September 11-style terrorist attacks in the United States and Europe.”

American arrogance of power will not fail to affect relations between the United States and its main rivals in the new Great Game: Russia, Iran, and China. President Jimmy Carter’s national security adviser Zbigniew Brzezinski argued as early as 1997 that “America is now Eurasia’s arbiter, with no major Eurasian issue soluble without America’s participation or contrary to America’s interests. How the United States both manipulates and accommodates the principal geostrategic players on the Eurasian chessboard and how it manages Eurasia’s key geopolitical pivots will be critical to the longevity and stability of America’s global primacy”.

The arrogance ad hubris expressed in such words infuriate the conservative power circles in Moscow who loathe the prospect of a long-term American military presence in Russia’s strategic backyard. At this point, Russia is now more likely to join forces with China in undermining American global supremacy. With its economy increasingly dependent on oil imports from the Middle East and Central Asia, China in particular will assert its interests in those regions even more vigorously. Iran is also likely to step up its actions against U.S. interests and pipeline plans in the Caspian region. Iran might come to see the possession of nuclear bombs as the sole effective defense against a possible American attack.

However vehement the denials by the Bush administration, its true intention in Iraq clearly is to turn the country into a strategic oil supplier for the U.S. economy …as an alternative to Saudi Arabia.

What is at stake behind the rhetoric of disarmament and human rights is nothing less than the control over the earth’s remaining fossil reserves, as envisaged in the May 2001 Cheney report on U.S. national energy policy.

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Energy used to spray agricultural pesticides

April 14, 2011. Drilling for a solution: finding ways to curtail the crushing effect of high gas prices on small business. U.S. House of Representatives. Small Business Committee Document Number 112–011

Rick Richter, owner of Richter Aviation, an aerial application business in Maxwell, California.

I am testifying today on behalf of the National Agricultural Aviation Association, also known as the NAAA, of which I am the 2011 president. NAAA is a national association which represents the interests of small business owners and pilot licensed as commercial applicators that use aircraft to enhance the production of food, fiber, and biofuel, protect forestry and control health threatening pests. Aerial application accounts for an estimated 18 percent of commercially applied crop protection products in the United States and is often the only method for timely pesticide application, especially when wet soil conditions, rolling terrain, or dense plant foliage presents the use of other methods of treating an area for pests.

The average aerial application business consists of two operating aircraft, four people, including two pilots, a mixer-loader, and an administrative staffer. Increases in fuel prices result in a number of cash flow and service marketability issues for the aerial application industry. And, of course, the price of fuel for agriculture will trickle down to the end consumer of food.

At the beginning of the season, an aerial applicator sets a base price per acre treated by air based on the expected cost of operation. This is the amount he charges his farmer clients. Depending on the type of fuel used, of which there are two—avgas for piston engineered aircraft and Jet A for turbine engine ag aircraft—an operator includes a base price for fuel going into the season. Some applicators stick with this price regardless of fluctuations in fuel price, and as a result may lose money when prices go up steeply. Other applicators will incorporate a fuel surcharge into their pricing structure. Incorporated within that fee per acre charge is the fuel charge which is based on an average price of fuel per gallon. This ranges but on average it is estimated to be about $2 per gallon. If fuel rises above that figure, a fuel surcharge is added, and a typical fuel surcharge is the difference between the average price for a gallon of fuel that an applicator builds into his acre charge and the price of a gallon of aviation fuel at the time of application, assuming that the latter is a greater amount, multiplied by the average number of gallons burned by that particular aircraft in an hour multiplied by the amount of time it took to make the application for the farmer. Fuel surcharges in our industry have been met with minimal complaint by farmer clients as of late because they will be getting a good price for the crop. If this was 2002 and we were faced with the same high prices for fuel that we are facing today but ag commodity prices were two to three times lower than what they are today, our industry would be facing some real challenges. As of April 6, 2011, the wholesale price of Jet A without taxes was $3.33 per gallon as quoted by a large Southeast U.S. fuel supplier. If in 2002 when commodity prices were much lower and Jet A fuel for turbine-powered ag aircraft was the same price today or the same price that it was at its height in 2008 when it averaged $4.72 per gallon, it would be much tougher for a farmer to embrace a fuel surcharge for aerial application services rendered.

Realistically, when input prices such as fuel are high and commodity prices are low, a significant drop in the use of aerial application services and other farm services would occur as a result of containing costs. Well, this helps the farmer contain expenses but frequently results in less yield and poor crop quality, hence negatively affecting his revenue potential. The lack of application work is a challenge for an aerial application operator that requires steady business each season to remain viable.

Another challenge that aerial applicators face, particularly when fuel prices are high, is the financial terms that fuel suppliers have for payment of their fuel and how those terms differ from their own accounts receivable terms. The typical payment term that an aerial applicator has with his fuel supplier is 10 days with established credit. This usually differs from payment terms that aerial applicators’ customers are accustomed to paying, which is typically between 45 and 60 days. This can pose challenges because fuel costs consist of approximately 20 percent of an aerial applicator’s total expenses. If the average ag aircraft burns 50 gallons per hour and is flown 300 hours per season and there are 2.2 aircraft on average per aerial application operation, then 36,816 gallons of fuel will be required.

When an applicator is facing a deficit in accounts payable compared to his accounts receivable and outlaying large chunks of capital for fuel particularly when the price of fuel is high, this may result in sizable interest payments for small aerial application businesses. It is widely expected that higher interest rates will return and coupled with the greater demand for fuel globally will likely lead to a steady increase in the price of fuel and place much greater cost pressures on small aerial application businesses. High fuel cost conditions in some instances do lead to aerial applicators taking more risk in trying to hedge the price of fuel by filling up their tanks early and storing fuel. But storing for too long of a period can result in developing moisture in the fuel, algae problems in Jet A, and possibly evaporation of avgas.

One other issue of concern to the agricultural aviation industry that is related to fuel supply is an effort underway to phase out the use of avgas. EPA has mentioned the possibility of a new environmental standard associated with avgas due to its emissions of lead in the air and calls by environmental activists to ban the fuel completely. Avgas is used in 51.87 percent of ag aircraft in the U.S. today. NAAA’s primary concerns are with the safety and feasibility issues associated with mandated a shift from avgas. NAAA has encouraged the EPA and the FAA to allow time for and devote resources toward the development of a suitable alternative to avgas before imposing avgas regulations or banning the use of the fuel altogether. NAAA urged the agency to consider the detrimental economic impacts that could occur to our industry and the farmers that rely on us should avgas be phased out prior to the development of a safe and practical alternate fuel. Piston engines are a notably less expensive engine

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Energy used in Potato Production

April 14, 2011. Drilling for a solution: finding ways to curtail the crushing effect of high gas prices on small business. U.S. House of Representatives. Small Business Committee Document Number 112–011

JIM EHRLICH. I speak on behalf of the 170 different potato growers in the San Luis Valley of South Central Colorado. Colorado ranks as the second largest shipper of fresh market potatoes in the country, a fact that many people do not know. These growers typically produce about 2.2 billion pounds of potatoes a year with a market price of 175– to $240 million depending on the price of potatoes that year. The San Luis Valley is a high alpine desert, base elevation of 7,600 feet with less than 7 inches of moisture annually.

Irrigation supplies are dependent on abundant snowpack and sustained utilization of a vast underground aquifer.

This 6-county region of Colorado is dependent upon agriculture as the economic engine for the valley’s 50,000 residents. Unfortunately, we possess some of the poorest counties in Colorado with many rural families having incomes below poverty level and without opportunity for better jobs.

Today I am going to focus on three things: the impact of high energy prices and gas prices on potato producers in the valley, the inability of the United States to increase domestic production of our vast energy reserves, and the cost of regulation to potato producers, the impact of high energy and gas prices on potato producers.

I recently read a report claiming that for every 10 cent increase in gas prices there is a net loss of $5 billion to the United States’ economy. When you consider the fragile state of the worldwide economy and our economy in the United States, this has great significance. When you consider that petroleum-based products are the only source for most of the transportation needs in the world today, there is no real mystery why when you have one supply and limited supply of that one item and worldwide demand is growing like it is, why there is a problem.

Agriculture requires energy as a critical input to production.

Potato production uses energy directly as fuel and electricity to operate tractors and equipment, cool potato cellars, process and package product indirectly, and fertilizers and chemicals produced off the farm are needed as critical inputs for crop production.

Total energy costs of an irrigated potato crop in the San Luis Valley can be as great as 50 percent of the total production expenses.

Unlike areas of the country where irrigation is unnecessary or no-till practices are common, this is not the case with potato production in the San Luis Valley. It requires large amounts of electricity to irrigate and large amounts of tillage.

Crops must be stored at the correct temperature and humidity year round to ensure marketable condition for consumers.

The crop must be shipped in refrigerated trucks to distant markets across the country throughout the year.

So what happens when gas prices rise like they have this year? Because farmers are price takers and lack the capacity to pass on higher costs through the food marketing chain, the net result is a loss in farm income. The reality is prices of most fuel sources tend to move together. So as gas prices typically rise, other energy prices rise in concert. Fertilizer prices are dependent upon natural gas prices and potatoes require large amounts of nitrogen, phosphate, and pot ash fertilizers.

Harvest, sorting, grading, and shipping are all heavily mechanized energy-dependent steps. The San Luis Valley is located in an isolated mountainous region. High diesel prices affect freight rates and truck availability cutting into the growers’ bottom line.

Because the United States relies on imported sources of oil for over 60 percent of our oil needs, we export wealth daily, primarily to countries that are hostile to us. This not only causes economic stress but is a threat to our national security. Without a stable source of relative economical energy for agriculture, our nation’s food security is at risk also, and as a result, our national security. As the proud father of a U.S. Marine serving in Afghanistan currently, I speak from my heart.

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Vaclav Smil on natural gas (ethane) and plastics

Vaclav Smil. 2013. Making the Modern World: Materials and Dematerialization.  Wiley.

Polyethylene (PE) is by far the most important thermoplastic (it accounted for 29% of the world’s aggregate plastic output, or roughly 77 Mt, in 2010), polypropylene (PP) comes next (with about 19% or 50 Mt in 2010), followed by polyvinyl chloride (PVC, about 12% or 32 Mt in 2010).

In 2010, packaging consumed almost 40% of the total (mostly as various kinds of PE and PP), construction about 20% (mostly for plastic sheets used as vapor barriers in wall and ceiling insulation), the auto industry claimed nearly 8% (interior trim, exterior parts), and the electrical and electronic industry took about 6% (mostly for insulation of wires and cables).

All of these products begin as ethane. In North America and the Middle East ethane is separated from natural gas, and low gas prices and abundant supply led to surplus production for export and favored further construction of new capacities: in 2012 Qatar launched the world’s largest LDPE plant and, largely as a result of shale gas extraction, new ethylene capacities are planned in the USA (Stephan, 2012). The dominant feedstock for ethane in Europe, where prices of imported natural gas are high, is naphtha derived by the distillation of crude oil.

Plastics have a limited lifespan in terms of functional integrity: even materials that are not in contact with earth or water do not remain in excellent shape for decades. Service spans are no more than 2–15 years for PE, 3–8 years for PP, and 7–10 years for polyurethane; among the common plastics only PVC can last two or three decades and thick PVC cold water pipes can last even longer (Berge, 2009).

Some products made out of plastic:

  • Transparent or opaque bags (sandwich, grocery, or garbage)
  • sheets (for covering crops and temporary greenhouses),
  • wraps (Saran, Cling)
  • squeeze bottles (for honey)
  • HDPE garbage cans
  • containers (for milk, detergents, motor oil)
  • HDPE for house wraps (Tyvek) and water pipes
  • PEX for water pipes and as insulation for electrical cables
  • UHMWPE for knee and hip replacements.
  • massive LDPE water tanks
  • indoor–outdoor carpeting
  • lightweight fabrics woven from PP yarn and used particularly for outdoor apparel
  • insulated wires, water, and sewage pipes to food wraps and her car’s interior and body undercoating
  • disposable and surgical gloves
  • flexible tubing for feeding
  • breathing and pressure monitoring, catheters
  • blood bags
  • IV containers
  • sterile packaging
  • trays
  • basins
  • bed pans and rails
  • thermal blankets
  • lab ware
  • construction (house sidings, window frames)
  • outdoor furniture
  • water hoses
  • office gadgets
  • toys
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Wind EROI range and payback time (also solar, NG, geothermal, hydro, coal)

[Clearly Energy Returned on Invested (EROI) research needs to have common standards because results vary by orders of magnitude. Taking the “average” is not going to produce the best guess because outliers skew the average up  substantially.  The EROI of onshore wind ranges from 5 to 92, Solar PV from 1 to almost 50, and hydropower from 6 to nearly 300. The energy payback times in Figure A, which come from the IPCC (in orange) are far too short. In general the IPCC greatly exaggerates how much coal, oil, and natural gas remain because the IPCC does not invite systems ecologists and the petroleum geologists who correctly predicted peak oil production based on Hubbert and other mathematical algorithms, decades of field work, and the world’s best database of oil production around the globe.

Alice Friedemann  www.energyskeptic.com]

DOE. 2014. Wind vision a new era for wind power in the United States. Department of Energy.

Figure A. Review of energy payback and energy ratios of electricity generating technologies

Figure A. Review of energy payback and energy ratios of electricity generating technologies.

Energy ratio is the ratio of energy produced by a technology over its lifetime to the input energy required to build the power generating technology. Energy payback time is the amount of time required to pay back the technology’s input energy requirements given the amount of yearly energy produced.  Source: Non-wind estimates from [Edenhofer]; wind estimates based on literature review detailed in Appendix J.

Similar in concept to the assessment of life-cycle GHG emissions is the aim of a large body of literature to estimate on a life-cycle basis the amount of energy required to manufacture and operate energy conversion technologies or fuels (i.e., “input” energy). This concept helps inform decision makers on the degree to which various energy technologies provide a “net” increase in energy supply, and is often expressed in the form of either:

  • Energy ratio: a ratio of the amount of energy produced by a technology over its lifetime to its input energy; or
  • Energy payback time: the amount of time required to pay back the input energy given the amount of yearly energy produced.

Figure A summarizes published estimates of these two metrics for wind technologies, in comparison to estimates for other electric generation technologies as presented in a recent report from the Intergovernmental Panel on Climate Change [Edenhofer]. With regard to wind energy, 55 references reporting more than 130 net energy estimates were reviewed, using the same literature screening approach as for the review of life-cycle GHG emissions (see Appendix J).

Figure A presents a summary of the review. To be clear, these results are reported from studies that exhibit considerable methodological variability. Although previous work has identified several key issues that can influence results (e.g., [Kubiszewski, Brandt 2011, Brandt 2013]), the literature remains diverse and unconsolidated. Variability in the results for wind, for example, may in part be due to difference in the treatment of end-of-life modeling (e.g., recycling); assumed system lifetime and capacity factor; technology evaluated (turbine size, height); and whether turbine replacement is considered.

Notwithstanding these caveats, the results suggest that both land-based and offshore wind power have similar, if not somewhat lower, energy payback times as other technologies, with higher (especially at the high end) energy ratios. That is, wind energy performs relatively well in comparison to other electric generation technologies on these metrics, requiring roughly the same or even lower amounts of input energy relative to energy produced.

Brandt, A.R.; Dale, M. 2011. A General Mathematical Framework for Calculating Systems-Scale Efficiency of Energy Extraction and Conversion: Energy Return on Investment (EROI) and Other Energy Return Ratios. Energies (4:8):1211–1245.   http://www.mdpi.com/1996-1073/4/8/1211.

Brandt, A.R.; et al. 2013. Calculating Systems-Scale Energy Efficiency and Net Energy Returns: A Bottom-Up Matrix-Based Approach. Energy (62):235–247.  http://www.sciencedirect.com/science/article/pii/S0360544213008207.

Edenhofer, O.; et al., eds. 2011. IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation. Cambridge, UK, and New York: Cambridge University Press.   http://srren.ipcc-wg3.de/

Kubiszewski, I.; et al. 2010. Meta-Analysis of Net Energy Return for Wind Power Systems. Renewable Energy (35:1), 2010; pp. 218–225. doi:10.1016/j.renene.2009.01.012.  http://www.researchgate.net/publication/ 222703134_Meta-analysis_of_net_energy_return_for_wind_power_systems


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