BTC. November 2010. Armed Forces, Capabilities and Technologies in the 21st Century Environmental Dimensions of Security. Sub-study 1. PEAK OIL Security policy implications of scarce resources. Bundeswehr Transformation Centre, Future Analysis Branch.
[This is my summary of the above document (English version). According to Der Spiegel this study was leaked and not meant for publication. My comments are between brackets. Anyone who’s been following the peak oil and resource crisis will not be surprised by any of this. What makes this document important is that it’s coming from a very solid source. The summary below, like all my reviews, consists of what I found interesting or important. I didn’t include a lot of material, such as the implications for Germany as a nation. The document concludes that the public must be made aware of peak oil implications so that preparation for peak is accelerated immediately. September 16, 2011 Alice Friedemann]
This study is intended to explain the potential security policy consequences, risks and cascade effects that may arise from peak oil and addresses the subject of finite resources and their potential security policy implications as well as climate change and demography.
In the past, numerous conflicts were linked to raw material deposits. Literature relating to this subject is extensive. Usually resource conflicts have been restricted to specific regions and of limited relevance to international security policy. With global peak oil, this could change: 1) a global lack of oil could represent a systemic risk because its versatility as a source of energy and as a chemical raw material would mean that virtually every social subsystem would be affected by a shortage. 2) The concentration of oil deposits and transport infrastructure in the “Strategic Ellipse” could result in a shift in geopolitical power.
The Strategic Ellipse has 74% of the world’s oil and 70% of the world’s natural gas reserves:
It is a fact that oil is finite and that there is a peak oil. Since this study is mainly focused on understanding cause-effect relations following such a peak oil situation, it is not necessary to specify a precise point in time. Some institutions claim that peak oil will occur as early as around 2010. [Science magazine Peak Oil Production May Already Be Here reported that peak is likely to have been in 2005 in their Mar 25, 2011 issue]
Today approximately 90% of all industrially manufactured products depend on the availability of oil. Oil is not only the source material for producing fuels and lubricants but is also used as hydrocarbon for most plastic. It is one of the most important raw materials in the production of many different products such as pharmaceuticals, dyes and textiles. As the source material for various types of fuels, oil is a basic prerequisite for the transportation of large quantities of goods over long distances. Alongside information technology, container ships, trucks and aircraft form the backbone of globalization. Oil-based mobility also significantly influences our lifestyle, both regionally and locally. For example, living in suburbs several miles from their workplace would be impossible for many people without a car.
A considerable increase in oil price would pose a systemic risk because the availability of relatively affordable oil is crucial for the functioning of large parts of the economic and social systems. For some subsystems, such as worldwide goods shipping or individual transportation, the importance of oil is obvious.
Many challenges exist when there aren’t enough oil supplies. For example, consider North Korea. After the Korean War, the USSR helped North Korea develop modern agriculture. When the USSR collapsed, the flow of cheap oil suddenly dried up. Agricultural machines had to be put out of service. A return to traditional cultivation methods was aggravated by over-fertilized land, and the proportion of people employed in agriculture was increased from 25% to 35% to compensate for the loss of 80% of the agricultural machines. Despite this, harvests dropped by 60% between 1989 and 1998.
[Pages 13 and 14 describe how Great Britain, the USA, Russia, India, and China have declared energy as essential to their prosperity, competitiveness, and affecting national security, and the actions they are taking to secure oil.]
It can therefore be stated that against the backdrop of the ever-decreasing availability of fossil fuels, the challenge of ensuring long-term energy supply is reflected in national strategies worldwide, leaving no doubt as to the vital importance attached to this issue. In this context, the fact that energy supply aspects occupy an increasingly important place in the national security strategy documents of various countries is likely to have consequences on the nature of future energy relations. These strategy documents emphasize a peaceful method of securing energy supplies.
But competition and conflict over scarce oil resources are likely to arise at some point.
The German Government defines energy security as a “secure, sustainable and competitive supply of energy”. Energy crises are lasting imbalances between supply and demand, which provoke price jumps and have negative effects on the economies concerned. Energy security policy therefore aims at preventing energy supply shortages or supply disruptions.
90% of all oil imports to Germany come from countries that have already exceeded their national peaks during the study’s period of review. It is very likely peak oil has already occurred for Russia, Norway and Great Britain. These 3 countries supply 60% of Germany’s total oil import volume. Great Britain, from which Germany receives 10% of its oil imports, is already an oil net importer and can only export oil to Germany after having previously imported from third countries.
About 90% of all oil countries have exceeded their peak or are likely to reach it by 2015. Brazil and Angola may be able to increase production. Saudi Arabia is likely to be in decline. This is extremely relevant because the point at which global peak oil occurs is likely to be determined primarily by Saudi Arabia’s oil production potential. In a worst-case scenario, this would mean that even a dominant oil power such as Saudi Arabia could cease to function as a potential swing producer.
Oil producing nations are likely to use their power to aggressively enforce political, economic, or ideological objectives for their own interests, such as Russia’s gas disputes with Ukraine.
Countries are also likely to stop exporting as much oil to preserve oil resources for future generations. The more obvious the actual scarcity of oil, the more expensive oil would become and thus the greater the profits of producer countries. The calculus of “political peaking” would become all the more understandable. Political peaking would further aggravate peak oil-induced supply shortage and related price increases.
If oil is sold to a producing nation’s citizens at below-market prices to improve their lives, export quantities will dwindle even further.
In the past countries have relied on many sources of oil, but as the oil increasingly only becomes available from the strategic ellipse, diversifying sources won’t be possible, and the nations in the strategic ellipse will become ever more important.
Nations will woo oil producing nations by acting as trade partners, investors, suppliers of technology and weapons, lenders, “development aid workers”, etc. China does not leave energy supply to the markets, but already today tries to place it under government control. It also supports the foreign operations of its national oil companies by providing regional, broadly based and intensified energy diplomacy. The Chinese commitment in Africa is an example for the country’s attempts to position itself for sustainably securing its national resource supply. In addition, Chinese oil companies have been making efforts to obtain licences for a share of the reserves in the US for several years, and lately they have been successful. On 12 October 2010, for example, the Chinese oil giant CNOOC bought into the Texan reserves of Chesapeake Energy in Texas for several billion dollars.
Reshaping supply relationships after global peak oil
In light of peak oil, the share of oil traded on the global, freely accessible oil market might decrease in favor of oil traded via bilateral agreements, replacing a free market with private contracts. Oil producing nations might demand nuclear material in exchange for oil.
Increased importance of oil infrastructure
When peak oil is exceeded, transport infrastructure will become even more important. Global transportation routes via which oil is distributed with supertankers or long pipeline sections are difficult to protect and provide easy targets for interrupting the oil supply. This will increase the incentive to sabotage energy infrastructure. Since a major part of the oil reserves remaining after peak oil is concentrated in the Strategic Ellipse, the oil infrastructure in this region is becoming increasingly important for many countries. Interruption of these energy infrastructures would be an easy and worthwhile target. A comparatively huge amount of damage with global political and economic implications could be caused with very little resources and low risk. The series of attacks in Nigeria already show these tendencies.
The infrastructure of gas and electricity as a partial substitute for oil will require increased protection.
Environmental problems, war
Conventional deposits cause much less environmental damage than non-conventional oil resources, such as tar sands and deep sea oil. Accidents in the arctic could have severe consequences in the complex Arctic ecosystem
Ownership of the arctic isn’t settled which could lead to conflicts. The strategic significance in securing resources and the exploration of new and controversial oil-producing areas may increase the probability of a further build-up of military arsenals to enforce those claims. Efforts aimed at expanding military capacities for the protection of own claims on the Arctic can already be seen today.
Similar considerations apply to international waters. The growing possibility of deep-sea resources exploration would increasingly bring unsettled territorial claims as a potential cause of conflict to the fore, as can currently be seen in the territorial conflicts over the South China Sea. With the exploitation of high sea deposits, the significance of blue water navies would also increase.
Natural gas (NG) as an extension of the oil era
NG is seen as a substitute for oil in many fields and is expected to last longer than oil.
[Note: in the USA, reserves of NG have been greatly exaggerated ].
Natural gas will therefore be one of the most important fossil fuels of the future and will have to replace oil to a considerable extent. NG cannot simply be shipped but must be transported as gas via a pipeline or, after compression or liquefaction (liquefied natural gas (LNG)), with special-purpose tankers. Pipeline systems, however, which currently carry the major part of natural gas produced to the consumers, are regionally restricted. Instead of one world market for natural gas are several regional markets with limited numbers of suppliers.
The pipelines that carry NG span countries as well political, economic, and cultural regions, which is likely to lead to conflict over the routes, construction, and a need for increased protection of the pipelines.
Nations may electrify their energy infrastructure to make use of more nuclear plants, but that will increase the likelihood of accidents which could have dramatic ecological consequences – globally. This is even more of a problem in nations with weak institutions and technological competence.
Uranium mining is environmentally destructive, a great deal of water is required to cool nuclear power plants, and dismantling of old plants and waste disposal are further negative factors.
Expansion of nuclear energy increases the odds of nuclear weapons getting into the wrong hands. Oil producers are likely to demand nuclear material in exchange for oil. Nuclear terrorist groups or organized crime will have access to increased waste and nuclear material
This section basically says that peak oil is going to cause food prices to rise, leading to food crises and instability. Food prices will go up even more if crops are grown to create biofuels because that displaces food crops.
Excessive biomass production without sustainable agricultural solutions would exacerbate the impact of climate change. A more intensive agriculture, especially with high yield crops grown as monocultures, will have additional negative effects especially on those regions that are already facing acute water shortages. The degradation of soil due to erosion, compression, salinization and desertification may progress considerably. With the destruction of intact eco-systems and the loss of biodiversity the natural regeneration potential of the biosphere would decrease on a local and global level. Without sustainable solutions the rapidly growing production of renewable energy raw materials could intensify economic and ecological crises in many regions of the world.
[Growing plants for fuel or electricity is never going to work:
Will last longer than oil but is also finite. If technologies for a climate-friendly coal power generation (carbon capture and storage (CCS) etc.) are not used globally, the CO2 concentration in the atmosphere will increase considerably and accelerate climate change. The same is true for coal liquefaction but with the current state of the art is inefficient energetically and harmful to the climate. The setup of such plants will involve high economic and political costs. Complex planning and approval procedures and negative impacts on the environment may pose potential obstacles. In view of a global oil shortage, nations may resort to low quality high-polluting coal. Coal liquefaction is a “last resort” to supply industry, transport systems and armed forces with fuel, (i.e. Germany in WWII).
Other forms of energy
Nations will try to develop other forms of energy, but no one region hardly ever has the conditions favorable to develop sun, wind, geothermal, and biomass. Developing these alternatives depends on a complex electrical infrastructure being built. This infrastructure also needs to be protected and must operate across the borders of nations and different cultural groups, so it’s far more than a technological or economic challenge to build, requiring a long-term stable economic and political environment.
Societal risks of peak oil
1 Economic collapse
2 Transportation restricted
3 Erosion of confidence in state institutions
There are not sufficient alternatives to oil transport so when oil grows short, there are likely to be extreme restrictions to private vehicles, especially in suburbs, resulting in a “mobility crisis” that would make the economic crisis much worse.
Scarce or expensive oil would drive up the cost of all goods.
Our current international movement of goods has largely been made possible by the technological progress in the field of freight traffic (container ships, trucks, cooling systems), which are based on fossil fuels. So trying to switch all modes of transport to alternative energy sources is much more complex with today’s common means of transportation and technology. Mobility on the basis of fossil fuels is likely to remain a long time. Oil shortages could lead to bottlenecks in delivering food and other life-sustaining essential goods.
After peak oil, there would be significant differences from past food shortages:
– The crisis would concern all food traded over long distances, not just single regions or products. Regions that are structurally already at risk today would however be particularly affected (see figure 6).
– Crop yields also depend on oil. Lack of machines or oil-based fertilizers and other chemicals to increase crop yield would therefore have a negative effect on crop production
– The increase in food prices would be long-term
– Competition between the use of farmland for food production and for producing biofuels could worsen food shortages and crises.
Even countries with good food production could experience social unrest if it’s distributed inefficiently or unfairly.
Oil is used directly or indirectly in the production of 90% of industrial goods, so a shortage of oil would affect the entire economic system. All prices would go up. Unemployment would go up.
[The paper mentions that other types of jobs would become available, but going from making cars to buggies and breeding enough horses and mules to pull the buggies will take a lot of time. Rickshaws would be a better analogy, since we can’t go back to horses given we don’t have enough land to feed them].
There are no post-fossil societies to look at for ideas about how to succeed in making this transition, this is a completely novel situation. [Actually, as they well know, since they have a North Korea footnote, this is not a novel situation – we can look at North Korea to see how this is likely to unfold. Cuba is held up as an example by many, but their situation is ecologically and in other ways unique, especially in having a culture of helping each other out, an already large portion of their population in the agricultural sector, year-round rainfall, 3 crops a year (no freezing temperatures), etc. — see the Oxfam reports on Cuba for why we can’t copy their success].
Loss of confidence
After oil shortages people will experience a lowering of living standards due to an increase in unemployment and the cost of oil for their vehicles. Studies reveal that only continuous improvement of individual living conditions provide the basis for tolerant and open societies. Setbacks in economic growth can lead to an increase in the number of votes for extremist and nationalistic parties [Heil Hitler! We already have extremism “Merchants of Doubt”), fundamentalist extremism, religious insanity, and so on.]
3.2 The Systemic Risk of Exceeding the Tipping Point pages 56-59
The transmission channels of an oil price shock involve diverse and interdependent economic structures and infrastructures, some of which are of vital importance. Its consequences are therefore not entirely predictable. Initially, it will be possible to measure the extent of these consequences, although not exclusively, by a reduced growth of the global economy.
Tipping points are characterized by the fact that when they are reached, a system no longer responds to changes proportionally, but chaotically. The term “tipping processes” is used in the field of climate research. At such a point, a minor change in has a drastic effect on an ecosystem. At first glance, it seems obvious that a phase of slowly declining oil production quantities would lead to an equally slowly declining economic output. Peak oil would bring about a decline in global prosperity for a certain length of time. Economies, however, move within a narrow band of relative stability. Within this band, economic fluctuations and other shocks are possible, but the functional principles remain unchanged and provide for new equilibrium’s within the system. Outside this band, however, this system responds chaotically as well.
How this might occur:
1) After peak oil alternative fuels will not compensate leading to a loss of confidence in the markets.
2) Increasing oil prices will reduce consumption and economic output leading to recession.
3) Higher transportation costs will make the prices of all traded goods rise. Trade volumes would decrease, and some nations would no longer be able to afford to import food.
4) National budgets will be devoted to securing food and dealing with unemployment, leaving little funding to invest in oil substitutes and green technology. Revenues would keep falling as a result of the recession and declining tax revenue.
In the medium term, the global economic system and all market-oriented economies would collapse.
1) Corporations would realize the contraction will go on for a long time
2) Tipping point: In an economy shrinking over an indefinite period, savings would not be invested because companies would not be making any profit. For an indefinite period, companies would no longer be in a position to pay borrowing costs or to distribute profits to investors. The banking system, stock exchanges and financial markets could collapse altogether. In theory, there are industries that could profit from the situation. The oil industry or companies in the green-tech sector would certainly have an increasing demand for capital. Given the companies’ environment, in particular the dependence of these industries on (international) value chains and infrastructures, as well as the dramatically changing conditions on the demand side, it would be implausible to expect “islands of stability” which continue to exist on a “micro level”.
3) Financial markets are the backbone of global economy and an integral component of modern societies. All other subsystems have developed hand in hand with the economic system. A completely new system state would materialize.
Other likely consequences
Banks left with no commercial basis. Banks would not be able to pay interest on deposits as they would not be able to find creditworthy companies, institutions or individuals. As a result, they would lose the basis for their business.
Loss of confidence in currencies. Belief in the value-preserving function of money would dwindle. This would initially result in hyperinflation and black markets, followed by a barter economy at the local level.
Collapse of value chains. The division of labor and its processes are based on the possibility of trade in intermediate products. It would be extremely difficult to conclude the necessary transactions lacking a monetary system.
Collapse of unpegged currency systems. If currencies lose their value in their country of origin, they can no longer be exchanged for foreign currencies. International value-added chains would collapse as well.
Mass unemployment. Modern societies are organized on a division-of-labor basis and have become increasingly differentiated in the course of their histories. Many professions are solely concerned with managing this high level of complexity and no longer have anything to do with the immediate production of consumer goods. The reduction in the complexity of economies that is implied here would result in a dramatic increase in unemployment in all modern societies.
National bankruptcies. In the situation described, state revenues would evaporate. (New) debt options would be very limited, and the next step would be national bankruptcies.
Collapse of critical infrastructures. Neither material nor financial resources would suffice to maintain existing infrastructures. Infrastructure interdependencies, both internal and external with regard to other subsystems, would worsen the situation.
Famines. Ultimately, production and distribution of food in sufficient quantities would become challenging.
The developments shown here make it clear that it is essential to secure the supply of energy to the economic cycle in sufficient quantities to enable positive economic growth. A contraction in economic activity over an indefinite period of time represents a highly unstable state that will cause the system to collapse. It is hardly possible to estimate the security risks that such a development would involve.
Other countries may spread the “infection” of economic collapse to other nations due to the highly interdependent relations between nations in the global economy.
In complex systems less energy can lead to collapse.
Oil shortages are likely to be seen by importing nations as a national security issue leading to conflict [i.e. USA invasion of Iraq & Afghanistan is really about oil, not WMD, duh.] Conflict could also emerge over renewable energy resources (p63)
Effects on armed forces
In the long run, not only all societies and economies worldwide but armed forces as well will be faced with the various and difficult challenges of transformation towards a “post-fossil” age.
Implications for Germany: A markedly reduced mobility of the German Armed Forces would have various consequences – not only for the available equipment and training, but also for their (global) power projection and intervention capabilities. Given the size and complexity of many transport and weapon systems as well as the high standards set for qualities like robustness in operation, alternative energy and drive propulsion systems would hardly be available to the necessary extent in the short term. One of the consequences to be initially expected would be further cutbacks in the use of large weapon systems for training purposes in all services, thus raising the need for more “virtualized” training. However, effects on current and planned missions would most likely be even more severe. Deployment to the theater of operations, the operation of bases and the mission itself are considerably more energy- and above all fuel-intensive than the mere upkeep of armed forces. Rapid operations of highly mobile forces, which are regularly deployed by air, would be particularly affected, as well as air force missions, laying severe restrictions upon these types of operations. Despite being common practice, alternative solutions for deployment like increased rail transport or a markedly more efficient transport of equipment, supplies or even personnel by ship are unlikely to provide full substitution. Especially with regard to deployments from railway stations and sea ports into the operations area (“the last mile”) and deployments within theaters of operations lacking access to sea or railway, combustion engine based drive propulsion systems will not as easily be substitutable. The same applies to tactical mobility.
In order to prevent a restriction of capabilities and deployment options of the Bundeswehr, alternative solutions to oil-based fuels would be necessary in the short term. While these solutions, such as coal liquefaction or in some cases natural gas liquefaction, are possible and conceivable in principle, they would entail considerable political and economic efforts. They would require considerable investments and radical industrial policy decisions. Considering the challenges society as a whole would face as a result of peak oil, it seems unlikely that this could be accomplished even in case of an emergency. Moreover, worldwide (re-)initiation particularly of coal and gas liquefaction would further expedite both the shortage of fossil fuels and climate change. Even though cooperation in international alliances may hold benefits when it comes to technologies or coal and gas reserves, it would turn coal and gas into even more important and strategic resources and make their national exploitation a priority. Especially coal could potentially become a “strategic reserve” for Germany. Besides ensuring the availability of alternative fuel solutions such as liquid coal or gas at least in technological terms, building up large strategic reserves of fuel for all kinds of Bundeswehr vehicles, ships and aircraft should be considered in order to bridge supply shortages for an extended period of time if necessary.
When considering the consequences of peak oil, no everyday experiences and only few historical parallels are at hand. It is therefore difficult to imagine how significant the effects of being gradually deprived of one of civilization’s most important energy sources will be.
Psychological barriers cause indisputable facts to be blanked out and lead to almost instinctively refusal to look into this difficult subject in detail. Peak oil, however, is unavoidable. This study shows the existence of a very serious risk that a global transformation of economic and social structures, triggered by a long-term shortage of important raw materials, will not take place without frictions regarding security policy. The disintegration of complex economic systems and their interdependent infrastructures has immediate and in some cases profound effects on many areas of life, particularly in industrialized countries.
While it is possible to identify specific risks, the majority of the challenges we are facing are still unknown.
Even if the developments described in this study do not occur as depicted, it is still necessary and sensible to prepare for peak oil. The time factor may be decisive for a successful transformation towards post-fossil societies. In order to accelerate democratic decision processes in this respect, it is necessary to embed the dangers of an eroding resource basis in the public mind. This is the only way to develop the necessary problem awareness for prospective settings of the course. In general, decentralized solutions can indeed be encouraged by centralized agencies, but not developed and implemented