Will perovskite solar cells ever work out?

Van Noorden, R. September 24, 2014. Cheap solar cells tempt businesses. Nature #513 470-471.

[Excerpts. Of interest because rarely do obstacles get mentioned in the news. Most are optimistic hype making it sound like a solution to the energy crisis is just around the corner. And forget that electricity does not solve our main problem — heavy-duty trucks, locomotives, and ships run on diesel fuel — not electricity. Batteries for heavy-duty transport vehicles are so large the vehicle would barely move, and overhead lines are not practical over millions of acres of farmland, or other off-road logging-trucks, mining trucks, etc., nor could wires be strung over 4 million miles of roads, requiring trucks to have yet another power system after getting off the wires to get to their destination, which doubles the price of the truck].

Large, commercial silicon modules convert 17–25% of solar radiation into electricity, and much smaller perovskite cells have already reached a widely reproduced rate of 16–18% in the lab — occasionally spiking higher.

The cells, composed of perovskite film sandwiched between conducting layers, are still about the size of postage stamps. Seok says that he has achieved 12% efficiency with 10 small cells wired together.

Six reasons why perovskite cells might not be The Next  Big Thing:

  1. To be practical, they must be scaled up, which causes efficiency to drop.
  2. Doubts remain over whether the materials can survive for years when exposed to conditions outside the lab, such as humidity, temperature fluctuations and ultraviolet light.
  3. Researchers have also reported that ions inside some perovskite structures might shift positions in response to cycles of light and dark, potentially degrading performance.
  4. The need for complex engineering might create another setback, says Arthur Nozik, a chemist at the University of Colorado Boulder. After plummeting in past years, the price of crystalline silicon modules — which make up 90% of the solar-cell market — has leveled off but is expected to keep falling slowly. As a result, most of the cost of today’s photovoltaic systems is not in the material itself, but in the protective glass and wiring, racking, cabling and engineering work.
  5. When all these costs are factored in, perov­skites might save money only if they can overtake silicon in efficiency. In the short term, firms are focusing on depositing the films on silicon wafers, with the perovskites tuned to capture wavelengths of light that silicon does not. On 10 September, Oxford PV announced that it was working with companies to make prototypes of these ‘tandem’ cells by 2015, and that this could boost silicon solar cells’ efficiencies by one-fifth, so that they approach 30%. Malinkiewicz’s hope is to find a niche that silicon cannot fill: ultra-cheap, flexible solar cells that might not last for years, but could be rolled out on roof tiles, or used as a portable back-up power source.
  6. There is another potential snag: perovskites contain a small amount of toxic lead, in a form that would be soluble in any water leaching through the cells’ protection. Although Snaith and others have made films with tin instead, the efficiency of these cells is only just above 6%.

 

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Oil shocks and the potential for crisis U.S. House 2007

oil shockwave 2007 oil on fire[ U.S. Congressional hearings have boasted of  America’s energy independence for several years.  For those of you with a longer view, and doubts about the shale “fracked” oil revolution, here’s a house hearing about oil dependence.  Much of the testimony revolves around an exercise called “Oil ShockWave”, which Admiral Blair describes as “an executive crisis simulation to illustrate the strategic dangers of oil dependence. Oil Shockwave confronts a mock U.S. cabinet with highly plausible geopolitical crises that trigger sharp increases in oil prices. Participants must grapple with the economic and strategic consequences of this ‘oil shock’ and formulate a response plan for the nation.” Some of the participants were Robert Rubin, former secretary of the Treasur, Carol Browner (former head of the EPA), Richard Armitage former deputy secretary of state, Retired General Abizaid, John Lehman, former secretary of the Navy, Gene Sperling former national economic adivisor, Phhilip D. Zelikow executive director of the 9/11 commission, and Daniel Yergin.

The best “solution” offered is by Edward Markey of Massachusetts: “require the President to adopt a nationwide oil savings plan that will achieve a total savings of 10 million barrels of oil per day by 2031.”   I like Markey’s solution because the best way to cope with declining oil is to reduce oil use enough every year to not have an oil crisis with its consequent risk of (nuclear) war and social unrest.  Reducing oil consumption every year forces action now rather than waiting for an oil crisis to strike.

Here is some of the most interesting testimony, followed by a longer excerpt.

ADMIRAL DENNIS BLAIR, USN (RET.), Former Commander in Chief, U.S. PACIFIC COMMAND

I spent more than three decades in the U.S. Navy…[where] my driving imperative was to protect the blood and treasure of the American people. When I look at the dangers facing the country now, it is impossible to ignore the looming and worsening menace of oil dependence. Senior officers throughout the military share this concern. They know that increasing dependence on overseas oil is putting a strain on U.S. military forces and saddling them with costly missions for which they were not designed.  The use of large scale military force in volatile regions of underdeveloped countries is difficult to do right, has major unintended consequences and rarely turns out to be quick, effective, controlled and short lived.

No amount of military force can alter the fundamentals of oil dependence. Oil is the life-blood of our economy. … In the event of an oil crisis, the economic consequences will be severe, and they will impact hundreds of millions of average Americans.

America’s oil dependence threatens the prosperity and safety of the nation.  The President and Congress must immediately implement a long-term strategy for reducing America’s oil dependence. All Americans must become more aware of the dangers of oil dependence and more involved in efforts to address this vulnerability.

Despite the promise of alternatives, America cannot hope to grow enough biofuels to obviate the need for improved fuel economy. Nor can we expect to derive security from vague promises of leap-ahead technologies.

I have talked to the car companies, and they say that the American people do not want more efficient cars; they want more powerful cars with more cup holders, so therefore, we have to give it to them.  I do not have a lot of sympathy for these car companies, because the price of that oil that we are using does not reflect the full price of the American troops who are doing all of this business around the world. If you factored in the real price of that oil, it would be huge, and frankly, I am sorry. It is not up to the car companies to make that judgment. It is up to the leaders of the American people to make that judgment.

EDWARD J. MARKEY, MASSACHUSETTS, CHAIRMAN. Forty-five percent of the world’s oil is located in Iraq, Iran, and Saudi Arabia; and almost two-thirds of known oil reserves are in the Middle East….each day carries with it the possibility of major oil supply disruptions, leading to economic recession and political or military unrest. [America spends $5 billion a week on oil, funds which]  end up in the pockets of Arab princes and potentates who then funnel the money to al Qaeda, Hezbollah, Hamas and other terrorist groups. With that kind of money at stake, it is no coincidence that we have 165,000 young men and women in Iraq right now, and it is no surprise that much of our foreign policy capital also happens to be spent in the Middle East.

The single biggest step we can take to curb our oil dependence and remove OPEC’s leverage is to raise the fuel economy standards of our automotive fleet. ..and require the President to adopt a nationwide oil savings plan that will achieve a total savings of 10 million barrels of oil per day by 2031.

EMANUAL  CLEAVER, MISSOURI. … if things go further awry, Pakistan could completely destabilize the Middle East in ways that Iraq never could. … it occurred to me that, even in the midst of all of these developments in the Middle East, that we are not, even after the Al Gore film and all of the discussions, we are not retreating from our appetite for oil…. You know, we talk about it, and then we just continue to splurge. This is chilling.

Carole BROWNER, former administrator at the EPA. The role that I was assigned [in the Oil SchockWave scenario] was Secretary of Energy. In this position I was supposed to suggest a series of short-term steps that could be taken by the American public to reduce oil use. [So] I said we could impose a 55-mile per hour speed limit, which would save 134,000 to 250,000 barrels of oil a day,  year-round daylight savings time to save 3,000 barrels per day, and a Sunday driving ban to save 475,000 barrels of oil per day.  The other Cabinet members  rejected these ideas. They did not think they would be acceptable to the American people.    [Another] debate unfolded when I said we should access the Strategic Petroleum Reserve (SPRO).  That got complicated in a hurry, because the Secretary of Defense said [the SPRO] was the Navy’s.   So suddenly we couldn’t find common ground on whether or not to take advantage of the SPRO. The individuals representing the Department of State and Department of Defense also raised the issue of whether or not the military gets the first rights to the SPRO, as opposed to the American people. And the concern they were focused on was, with growing unrest in the world in this scenario, would they have to deploy additional troops and therefore be in need of additional oil and should they get a first call on it?

JOHN J. HALL, NEW YORK. It seems to me like we are going down a road where citizens of the United States, have never understood what it is like to be in a position like Brazil was in in the 1970s, for instance, where the world financial markets dictated to them certain things they had to do or else they would not get their next round of debt floated. So I think we need to be aware of that, that oil and our consumption of oil, is putting us in that position.

House 110-19. November 7, 2007. Oil Shock: Potential for Crisis. U.S. House of Representatives.  52 pages.

ADMIRAL DENNIS BLAIR, USN (RET.), FORMER COMMANDER IN CHIEF, U.S. PACIFIC COMMAND

On November 1, in partnership with the Bipartisan Policy Center, SAFE conducted Oil ShockWave, an executive crisis simulation developed over the last two years to illustrate the strategic dangers of oil dependence. Oil Shockwave confronts a mock U.S. cabinet with highly plausible geopolitical crises that trigger sharp increases in oil prices. Participants must grapple with the economic and strategic consequences of this ‘oil shock’ and formulate a response plan for the nation.

I want to stress that ShockWave is not a prediction of the future. It is a simulation that demonstrates how an oil crisis could develop. But the scenario is based on facts—and dangers—that are already exist today. Designed by finance, energy, industry, and national security experts, Oil ShockWave cannot be dismissed as sensationalism. The scenario that was played out last week involved violence and unrest in Azerbaijan and Nigeria along with worsening diplomatic relations with Iran. Though set in 2009, these events could have been ripped from today’s headlines.

Last week’s event featured former Treasury Secretary Robert E. Rubin, former Deputy Secretary of State Richard L. Armitage, former CENTCOM Commander General John P. Abizaid (U.S. Army, Ret.), former Secretary of the United States Navy and 9/11 Commission Member John F. Lehman, former White House Press Secretary Mike McCurry, former National Economic Advisor Gene Sperling, former EPA Administrator Carol Browner, 9/11 Commission Executive Director Dr. Philip D. Zelikow, and Pulitzer Prize-winning author Daniel Yergin.

Let me give you a brief synopsis of Oil ShockWave. In May of 2009, violence in the Baku, the capital of Azerbaijan, disrupts a major oil pipeline carrying about 1 million barrels per day to the Turkish Mediterranean port of Ceyhan. With spare capacity lacking, markets fear a supply crunch if the pipeline remains out of action. The news causes about a 12% spike in oil prices in a single day. Shortly thereafter, unrest in the Niger delta of Africa cuts off an additional increment of oil production. Iranian events compound these problems in subsequent weeks. Faced with the prospect of harsh economic sanctions from the U.S. and the European Union (EU), Iran announces that it will immediately reduce its oil exports by 350,000 barrels per day, and that further reductions are possible unless the U.S. and EU abandon the sanctions process. The move reduces spare capacity below half-a-million barrels per day. Oil prices spike to $145. When Venezuela announces it will join Iran by matching its production cut, oil prices climb to $160. The whole simulation covers four months. By the end of Oil ShockWave, events have disrupted 1% of world oil production—hardly an inconceivable shortfall given the threats directed at the world’s far-flung oil production and distribution network. As for the geopolitical and economic impacts, they, too, were vetted by experts for realism, but that doesn’t make them any less frightening: oil prices reach $160 per barrel. Gas prices soar to over $5.00 per gallon. Double-digit inflation ensues, and the U.S. and world economies teeter on the edge of recession.

I spent more than three decades in the U.S. Navy. My missions changed but my motivation never did; my driving imperative was to protect the blood and treasure of the American people. When I look at the dangers facing the country now, it is impossible to ignore the looming and worsening menace of oil dependence. Senior officers throughout the military share this concern. They know that increasing dependence on overseas oil is putting a strain on U.S. military forces and saddling them with costly missions for which they were not designed.

The use of large scale military force in volatile regions of underdeveloped countries is difficult to do right, has major unintended consequences and rarely turns out to be quick, effective, controlled and short lived.

The Persian Gulf is just about on the other side of the world from the United States. It takes more than 3 ships in the U.S. Navy to keep one ship on station: one there, one going, one coming. Pretty much the same ratio holds for airplanes and, as we are learning in Iraq, for soldiers and Marines. You just got back, you’re there or you’re getting ready to go again. A major military presence in the Gulf region raises local resentments and dangers that work against what the U.S. is trying to achieve. This is not just a post-9/11 phenomenon. It was true well before 9/11 in terms of the effect of major U.S. military forces staged or spending large amounts of time in the Gulf region. So after all this major military effort, what’s the bottom line? Gas is pushing $3 a gallon, we’re extending the tours of soldiers in the Gulf region to 15 months, and we’re more subject to events in the Persian Gulf than we ever were in the past.

Now, why has American security policy developed in this way? The fast pace of operations in the region has given little pause for reflecting on overall trends and effectiveness. American forces have been engaged in the Middle East since the tanker wars of 1987, and events have seemed to demand increasing our military force, not reducing it. But driving this engagement is America’s ever growing dependence on petroleum. This dependence has influenced successive administrations to strengthen military engagement rather than to search for other means—perhaps politically more difficult but in the long run more cost-effective means—for boosting energy security.

No amount of military force can alter the fundamentals of oil dependence. Oil is the life-blood of our economy. We consume more than 20 million barrels of oil per day, a quarter of the world total. More than 60% of the oil we use is imported. Nearly 70% of our oil consumption goes toward transportation, which relies on oil-based fuels for 97% of its delivered energy. In the event of an oil crisis, the economic consequences will be severe, and they will impact hundreds of millions of average Americans. It was this state of affairs that caused me to join the Energy Security Leadership Council, a group of business leaders and retired senior military commanders who are committed to reducing U.S. oil dependence in order to improve national security and strengthen the economy. The Council was organized by Securing America’s Future Energy, or SAFE, a non-partisan group that is educating the public about the nation’s current state of energy insecurity.

Lessons of Oil ShockWave

  1. There is really no such thing as ‘foreign oil.’ Oil is a fungible global commodity. Thus, a change in supply or demand anywhere will affect prices everywhere.
  2. Oil markets are currently precariously balanced. As a result, even small disruptions can have dramatic effects. This means that a supply shortfall of approximately 1 percent could cause prices to surge.
  3. The price of crude oil may rise quickly as a result of a supply shock, especially when spare capacity is tight. It will not necessarily take much time to go from $90 to $160.
  4. Once oil supply disruptions occur, little can be done in the short term to protect the U.S. economy from its impacts. There are few good short-term solutions. For instance, efforts to restrict America’s driving habits through speed limits or bans on driving raise difficult questions about enforcement and, even if successful, their impact would be limited. As Oil ShockWave makes clear, such measures would be at odds with political calculations that are seemingly ever-present in today’s highly partisan Washington atmosphere.
  5. There are a number of supply-side and demand-side policy options available that would significantly improve U.S. oil security. Stronger fuel-economy standards, increased domestic oil production, and responsible development of alternative fuels and infrastructure are the most effective steps we can take, but their impact will not be felt for at least a decade.
  6. Foreign policy and military responses are limited, because oil dependence is major constraint on strategic flexibility. This is true for the U.S. and even more so for many of our major allies.
  7. The Strategic Petroleum Reserve (SPR), the emergency supply of federally owned crude oil stored in underground salt caverns, offers only limited protection against a major supply disruption. The ShockWave cabinet had to be concerned that any announcement of a release of oil from the SPR could actually contribute to an increase in oil prices by sending the message that U.S. government was declaring the onset of a crisis. Also, the military leaders objected to using the SPR for domestic purposes, arguing that it should be kept in reserve for use by the armed forces.
  8. The stability of the entire oil-based global economy is currently dependent on Saudi Arabia’s ability to increase production dramatically and over a short timeframe. But Saudi spare capacity may be completely absorbed by surging oil demand from countries like China and India. If that happens (and many indicators point in this direction), the global oil market will be especially fragile.

At the conclusion of the simulation, former Treasury Secretary Robert E. Rubin credited Oil ShockWave with demonstrating “the critical importance of preventative action in mitigating the risks of oil dependence.” This is a vital lesson. If, or rather, when the U.S. is faced with the next oil crisis, there will be no easy answers. Short-term responses such as tapping the Strategic Petroleum Reserve or implementing emergency demand measures are likely to be insufficient. Long-term policy options such as improving fuel economy, boosting domestic oil production, and promoting alternative fuels will be years away unless we set them in motion today.

In conclusion, let me tie things back to the policy objectives of the Committee: improved security will require greater conservation as well as increased production of petroleum and alternatives here at home. If we put these measures in place before a crisis hits, we will be less susceptible to being whip-sawed by events. We will not have to be on a hair-trigger for major military involvements. And we will be in a much better position to break the cycle of increasing oil dependence followed by increased deployments of major U.S. forces into volatile and underdeveloped regions where they are often poorly matched to the mission of oil security.

Having witnessed the attacks of September 11, 2001, we know all too well the cost of failing to address national security threats on our own terms, rather than those of our enemies. America’s oil dependence threatens the prosperity and safety of the nation. Continued policy paralysis is unacceptable precisely because we can take action to improve our energy security.

The President and Congress must immediately implement a long-term strategy for reducing America’s oil dependence. This is a grave national and economic security issue that demands the attention of our leaders from both parties. And responsibility cannot stop there. All Americans must become more aware of the dangers of oil dependence and more involved in efforts to address this vulnerability.

Energy security cannot be purchased with easy answers. Despite the promise of alternatives, America cannot hope to grow enough biofuels to obviate the need for improved fuel economy. Nor can we expect to derive security from vague promises of leap-ahead technologies. A new consensus must be forged on the anvil of tough choices using proven policy solutions. To this end, both political parties must move beyond the half-measures that have long stalled the pursuit of real energy security.

To minimize oil dependence and its associated national security risks, both political parties must discard the dogmatic approaches that have long hampered the pursuit of energy security. Those who oppose further oil exploration in the United States must recognize that the failure to press forward with the environmentally responsible development of domestic energy resources exacerbates the dangers of oil dependence. Refusing to develop secure sources of domestic production leads to an unnecessary over-reliance on imported oil, much of which flows from less stable parts of the globe. Aside from amplifying the potential risk of a supply interruption, the preference for imported oil unnecessarily transfers billions of dollars of the nation’s wealth to foreign lands.

Those who oppose vehicle fuel-economy standards must accept that the free market has not—and will not—adequately motivate the investments necessary to protect the nation in the event of an oil crisis. As such, mandating improvements in the fuel economy of our cars and trucks is one critical and unavoidable step that Americans must take if we are to halt our national descent into unmitigated oil dependence.

Congress is now negotiating the contours of a national energy bill in conference. As that bill is finalized, it is important to stress a key point: reforming and strengthening the Corporate Average Fuel Economy (CAFE) system is the single most important step we can take to reduce oil dependence.

To its credit, the Senate has already approved a proposal dramatically improving fuel-economy regulations. Rather than maintaining the one-size-fits-all corporate average that hampers the existing CAFE system and burdens Detroit’s Big Three, the Senate voted in favor of flexible standards that will allow each automaker to maximize competitive advantages while ensuring steady increases in the fuel economy of the entire fleet of new vehicles. By raising the fleet-wide fuel economy of new cars and trucks to 35 mpg by 2020, these new standards could save the U.S. one million barrels of oil per day in just over a decade. That’s about the same as the oil shortfall that was involved in the Oil ShockWave simulation. Oil savings would continue to rise after 2020, perhaps reaching three million barrels per day by 2030. That would mean vastly increased energy security for our children and grandchildren. This Senate has put forth a sound legislative proposal that will boost energy security for decades to come. Furthermore, the President has already indicated support for reforming fuel-economy standards and increasing them by 4% per year, a rate that is actually faster than the one contained in the Senate’s proposal. It is time for Congress to approve a comprehensive and meaningful energy bill that the President can sign.

EDWARD J. MARKEY, MASSACHUSETTS, CHAIRMAN. Forty-five percent of the world’s oil is located in Iraq, Iran, and Saudi Arabia; and almost two-thirds of known oil reserves are in the Middle East.

Events in that part of the world have a dramatic impact on oil prices and on our national security. In the late 1970s, the oil embargo, Iranian revolution, and Iran/ Iraq war sent the price of oil skyrocketing.

Yesterday oil surged to a new record of $97 a barrel, amid government predictions of tightening domestic inventories, bombings in Afghanistan and an attack on a Yemeni pipeline that took 155,000 barrels of oil off the markets. And with al Qaeda threatening to attack Saudi Arabia’s oil, with our continuing struggles in Iraq, and with yesterday’s announcement that Iran now has 3,000 operating centrifuges for enriching uranium, each day carries with it the possibility of major oil supply disruptions, leading to economic recession and political or military unrest.

The United States currently imports more than 60% of its oil. Oil has gone up more than $70 a barrel in the last 6 years, from $26 a barrel in 2001. Each minute, the United States sends $500,000 abroad to pay for foreign oil imports. That is $30 million per hour, $5 billion per week.  With the record prices of late, these figures will surely grow by year’s end. Much of these funds end up in the pockets of Arab princes and potentates who then funnel the money to al Qaeda, Hezbollah, Hamas and other terrorist groups.

With that kind of money at stake, it is no coincidence that we have 165,000 young men and women in Iraq right now, and it is no surprise that much of our foreign policy capital also happens to be spent in the Middle East.

Our energy policy has compromised our economic freedom, and the American people want action because they know that the price has become much too high.

Last week, a group of energy and military experts converged in Washington to conduct an energy security war game. But the truth is the scenario that unfolded didn’t really seem at all fictitious. Like today, the scenario began when oil prices had gone up to trade consistently in the $95 per barrel range. Like yesterday’s attack on the Yemeni pipeline, the first event leading to crisis involved an attack on the Baku pipeline. And also like today, Iran’s nuclear ambitions and U.S. efforts to contain them prove to be a complicated endeavor that requires us to maximize all of our diplomatic military and economic leverage.

The problem is, with oil, we have ALMOST NO leverage. The reality is that there are no good short-term options to help us deal with oil addiction. The United States is home to less than 3% of the world’s oil reserves. Sixty percent of the oil that we use each day comes from overseas.

Global oil production levels are at about 85 million barrels per day, with excess production capacity at only about 1.65 million barrels per day. Hurricane Katrina alone removed as much as 1.4 million barrels per day from supplies. The Strategic Petroleum Reserve has just over a month’s worth of oil in it.

The single biggest step we can take to curb our oil dependence and remove OPEC’s leverage is to raise the fuel economy standards of our automotive fleet. ..and require the President to adopt a nationwide oil savings plan that will achieve a total savings of 10 million barrels of oil per day by 2031.

We have, however, at the same time, a piece of legislation which is now pending between the House and the Senate which has the potential to raise the fuel economy standard to 35 miles per gallon, would have 15% of our electricity produced from renewable electricity sources, and it would also use cellulosic fuels to substitute for oil which we could import. That bill should be finished if we can work hard on it between the House and the Senate over the next 4 weeks. I look forward to learning more about Oil Shockwave from our witnesses as well as their views about what Congress can do to address our energy security challenges.

 

EMANUAL  CLEAVER, MISSOURI. It is difficult to follow up a powerful sermon like the one that was just delivered by Mr. Blumenauer, which I would say ‘‘amen’’ to what he just said. As I read this morning a number of newspapers, including Financial Times, about what is going on in Pakistan, I became alarmed. Not because Pakistan is a supplier of oil but because, if things go further awry, Pakistan could completely destabilize the Middle East in ways that Iraq never could. And thinking about what is going on in Iran and hopefully dealing with this concern internally, I could not help to think that conflict in Pakistan, if it ends up in some kind of civil war and if the tribal areas get weapons, there is no telling—or get more weapons, U.S. weapons, there is no telling what could happen. But it occurred to me that, even in the midst of all of these developments in the Middle East, that we are not, even after the Al Gore film and all of the discussions, we are not retreating from our appetite for oil. In 1980, the United States imported 27% of the oil it uses each day; and today we are importing 60% of the oil we use each day. So it is not like all of the awareness is creating some reaction. It is what Mr. Blumenauer said. You know, we talk about it, and then we just continue to go ahead. We continue to splurge. This is chilling.

 

CAROL P. BROWNER, Former Administrator of the Environmental Protection Agency .  I appear today as a participant in the recent Oil Shockwave—Executive Oil Crisis Simulation. It is the second time I have done this. The value of Oil ShockWave was really quite significant because, as the Admiral said, what you quickly figure out is, even with all of this power behind you– the Secretary of Energy had huge amounts of power in this simulation, your choices in terms of immediate action are very, very narrow and even those choices immediately bump up with somebody else’s view of the world. The event was sponsored by Securing America’s Future Energy, SAFE, and the Bipartisan Policy Center; and it was designed to show the possible consequences of U.S. oil dependency and the ability of government officials to respond in the event of a global oil crisis. It was bipartisan in every way. The participants were divided between Democrats and Republicans, and the whole point is just, to the best of our ability, to demonstrate to the American people how a problem unfolds and how members of the President’s Council and senior staff might respond to that problem.

The Oil Shock exercise provides a number of important lessons for Congress. In the scenario that we did last week, three different things happened over a 3-month period. The year is 2009. It is past the election. There is no assumption in the scenario whether a Democrat or a Republican has won the election for President. Over a 3-month period, from May to August of 2009, the first thing that happens is that a pipeline in Azerbaijan is temporarily put out of service. The result of that is a loss of one million barrels of oil to the world’s market per day, and very quickly there is an upturn in prices. While this crisis is resolved in the course of the scenario, over the next 3 months, Nigeria takes 400,000 barrels a day off the market; and, in August, Iran and Venezuela cut their combined oil production by 700,000 barrels per day. So by the end of the simulation, the 3-month period, 1.1 million barrels of oil have been taken off the world market; and the price per barrel has shot up to over $160. I don’t think any of this is farfetched. Maybe not these precise things but certainly things like this could happen virtually any day.

The role that I was assigned was Secretary of Energy, and in this position I was supposed to suggest a series of short-term steps that could be taken by the American public to reduce oil use. For example, I said that we could impose a 55-mile per hour speed limit, which would save 134,000 to approximately 250,000 barrels of oil a day. We could implement year-round daylight savings time, which would save approximately 3,000 barrels per day. We could institute a Sunday driving ban, which would save about 475,000 barrels of oil per day.  My colleagues in this event, other Cabinet members, rejected these ideas. They did not think they would be acceptable to the American people.  Short-term energy conservation is frequently difficult, painful, and I think that was why the other participants in the scenario did not want to recommend to the fictional President that we take some of these steps.

That turned the discussion to whether or not we should access the Strategic Petroleum Reserve, which is under the auspices of the Secretary of Energy; and very quickly a debate ensued over two issues with respect to the SPRO. The first was, what is the appropriate use of the SPRO? Can you use it to manage price spikes or can you only use it for security matters? And, as Mr. Sensenbrenner pointed out, there are significant barrels there, but the truth of the matter not so significant that if this crisis had played out over a longer term that you could really answer the problem.

The second debate unfolded when I said we should access the Strategic Petroleum Reserve (SPRO).  That got complicated in a hurry, because the Secretary of Defense said [the SPRO] was the Navy’s.   So suddenly we couldn’t find common ground on whether or not to take advantage of the SPRO. The individuals representing the Department of State and Department of Defense also raised the issue of whether or not the military gets the first rights to the SPRO, as opposed to the American people. And the concern they were focused on was, with growing unrest in the world in this scenario, would they have to deploy additional troops and therefore be in need of additional oil and should they get a first call on it? 

I think the real lesson of oil shock and one that we seem, unfortunately, hard-pressed to learn is the need to think ahead, to make real and lasting commitments to a new approach, rather than wait to respond once we are in the thick of it.

As I look at the scenario and move into the issues that confront you as a committee today and the House and the Senate at large, I think the single most important thing would be to embrace CAFE. If there had been a CAFE standards such as being considered and passed by the Senate in effect during this scenario we would not have experienced the kind of problems, potentially could—would not have experienced the kind of problems that were unfolding in the scenario. The Senate CAFE proposal, if adopted this year, would result in an oil savings of 1.2 million barrels per day by 2020.

Let me again note this is the second time I have participated in this scenario. I think I was the only person that participated both times, and the lesson was the same. We need to get going. There are things we can be doing today to try and reduce our dependence. CAFE is certainly not the only thing, but I personally think it is an incredibly important thing.

The other thing I would add is that the scenario did not take global warming into account. As the Secretary of Energy, I tried to insert it into the discussion, but the focus, because it was such an immediate concern, always turned back to where do we get more oil quickly, what do we need to do to solve the problem?  It is absolutely essential that we think about what some of the alternatives may mean in terms of greenhouse gas emissions, in terms of our carbon footprint, in terms of how much more difficult do we make the task of reducing greenhouse gas emissions and carbon emissions.

Mr. SENSENBRENNER.  What is the role of Canadian oil resources and oil shale in the West? I know that you can’t turn that spigot on as quickly as we would like, but if we are looking at ways to prevent an oil shock from being extremely severe, that seems to be the most convenient and secure way to get increased oil or replacement oil.

Admiral BLAIR.  We saw that as part of the solution, but our understanding was the technology was not quite there. So we couldn’t count on that and that—but that the R&D should be put in to see if it is a viable alternative as an alternative source. Similarly, R&D should be put into other synthetic fuels in order to make them part of the solution.

Mr. CLEAVER, Missouri. One of the problems we have is that we live in a time in our country where everything is politicized. I am frustrated over how we have politicized global warming, how we politicized even the oil crisis. And so it is difficult for us to coalesce and move towards a solution. Because what we say and think reverberates across the land, and if you listen to radio and television talk shows, you can see what has happened. It is ugly out there. And rather than turn down the volume, we continue to turn it up. So this issue has already become muddy because of the way it is politicized. Do you have any suggestions on how we might be able to depoliticize the oil dependence issue or independence? Is there something you—some way you can suggest, say, can we write a song? Could we get Mr. Hall to write a hit song? I mean, what do we need to do?

Admiral BLAIR. An Admiral giving advice on politics is like a politician giving advice on maneuvering ships.  But those of us on the Council thought that what is required here is a compromise between those who have opposed fuel efficiency standards on the grounds that it is interfering with business and those who have opposed further exploration and development of alternatives on the grounds that it runs environmental risks and it is not pretty to have an oil rig out the back door. What we strongly recommended a year ago was that in order to provide the political cover for everybody to do what everybody recognizes is in the national interest, is both sides have to give, and it has got to be a comprehensive package so that it is recognized that all participants are doing the right thing for the country. And even though they can be accused of making a compromise with something that they pushed in the past, it is in the common good. And that is really—it is naive. It is kind of civics 101. I am not a politician, but I think it is time that we have to give a little to do the right thing for everybody. So my answer to your question would be to, you know, both sides of that center chair need to give a little bit and let us do more conservation, let us do more domestic production, let us do more alternatives. We have taken polling data within the country, and the people recognize it. But it is getting that popular support shredded through the filter of individual interests into a bill, which you all know better than I do, is a hard part of this.

Ms. BROWNER. I think the simulation actually would be a way in which you might find some common ground. In the simulation we did, there were—three of us were noted Democrats. Everyone knew we were Democrats. There were three that were well-known Republicans. You would recognize them immediately as Republicans. And then there were some former military brass, and we are never sure what they are. They are very good about that. But what happened is we were unanimous in our takeaway from the experience. So it didn’t matter what our political persuasion was when we came to the scenario. Our experience of the scenario was a shared one, and what we thought needed to be done was remarkably similar across the party lines when we stepped out at the end and resumed our regular identities. So I think it could go a long ways to perhaps bridging some of the gaps that inevitably exist as you all wrestle with important legislation. And if that doesn’t work, I agree, Mr. Hall should write a song.

Admiral BLAIR. I draw a contrast between the way we deal with countries that really don’t have our economic interests in their hand and those who do. When I was a commander in the Pacific, we could deal with countries in Southeast Asia, Indonesia, Malaysia, and other problem countries, and we weren’t completely dependent on them for oil supplies, so we could be a little sophisticated in our dealing with them. We didn’t have to turn to big, expensive, hair-trigger military options right off the bat.

By way of contrast, when we are dealing with countries who are controlling important parts of the world oil supply, we militarize our policy almost by default. What we feel, if we can drop the oil intensity of the United States economy, that is the amount of oil to produce every dollar of GDP and, as Mr. Sensenbrenner said, we dropped that between—after the first oil problems in the 1970s and the 1980s, but then it leveled out, and we are as dependent, as we all know, now. If we can do a combination of conservation and domestic alternatives, get that down again, then we are not as subject to being jacked around by these events and by these countries. So it really is a case of lowering our dependence on this as an economy to give these people who are in these shockwave events a little more flexibility so that they can have time to round up international support, so that they can use other maneuvers. It is just getting them on that hair trigger by the increased demand and the increased dependence that makes it so brutal when you come to one of these crisis situations like a pipeline that pops. So it is really that dependence that we need to work on.

I have talked to the car companies, and they are saying that American people do not want more efficient cars; they want more powerful cars with more cup holders. Therefore, we have to give it to them.  I do not have a lot of sympathy for these car companies, because the price of that oil that we are using does not reflect the full price of the American troops who are doing all of this business around the world. If you factored in the real price of that oil, it would be huge, and frankly, I am sorry. It is not up to the car companies to make that judgment. It is up to the leaders of the American people to make that judgment.

MARSHA BLACKBURN, TENNESSEE.   In my district in Tennessee we have a good bit of auto manufacturing.  Admiral Blair, as you were saying, the market needs to tell—the American people need to say this is something that we are looking for and that we want. I remember the gas crisis of the 1970s and what we went through there. So let me ask each of you: How do you think the American public would respond to rationing if we were to go through an oil crisis?

Ms. BROWNER. I will be honest with you. I do not think, at this point in time, particularly well, and I think that is because, while individual families and Americans are always prepared to do their part to solve a problem, they want to know that the companies that make the products are also doing their part. I think there is a frustration that the American people have that they cannot get more fuel-efficient cars.

Admiral BLAIR. Yes. I think the American people have two reactions to that scenario that you have sketched out. Number 1, they would be angry, frustrated and looking for what got them into that fix. Number 2, they would roll up their sleeves, and they would do what had to be done to make it better, to work their way out of it.  Since we know that now, why don’t we take the actions now to avoid that crisis because we know it would be so much harder on us if we brought it to that point.

Mrs. BLACKBURN. We do a lot of transport by truck across our Nation’s highways, and I was reading something the other day about the efficiencies of rail. I would love to hear what your thoughts are about moving more of our movement of goods and commodities to rail and taking it off the highways.

Admiral BLAIR. Part of our proposals were that fuel-efficiency standards should be applied to trucks as well as to cars, and we should make the trucks that we have more efficient also by applying the same sort of technology to them as we do to cars, and we should raise the fuel efficiency standard of our trucks as well as to our cars.

JOHN J. HALL, NEW YORK. Admiral, you talked about being ‘‘jacked around’’ by countries that we used to have a freer hand to deal with. You know, it seems to me that our options diplomatically or economically have been limited in terms of how we deal, for instance, with Saudi Arabia on one hand and China on the other hand. Is that what you would call a ‘‘loss of sovereignty’’?

Admiral BLAIR. Absolutely. The more you are constrained because of your dependence on another country, the more sovereignty you have lost.

JOHN J. HALL, NEW YORK. It seems to me like we are going down a road where citizens of the United States, have never understood what it is like to be in a position like Brazil was in in the 1970s, for instance, where the world financial markets dictated to them certain things they had to do or else they would not get their next round of debt floated. So I think we need to be aware of that, that oil and our consumption of oil, is putting us in that position.

Admiral BLAIR. I think that is absolutely right. Some of that came up in these simulations when the Secretary of State said in the simulation, ‘‘Well, I went to country X, and asked them if they would increase their amount of oil, and country X said, ‘Yes, I can do that, but there are a couple of things I want from you, United States. I want you to lay off hitting me on this policy that I am doing. I want you to make this concession.’ ’’ So it puts us in the position of having to spend some of our blue chips to get some of theirs, and we would just as soon not be there.

It seems to me that Detroit is advertising power and speed and style and is not advertising efficiency. Take notes, and just make it a project one night to sit in front of the TV, and every time a car ad comes on, make a note of what kind of car is being advertised and whether they are touting efficiency and reliability or whether they are touting sexiness and speed and 340 horsepower to leap out at the stop sign or at the merge ramp.

JOHN B. LARSON, CONNECTICUT.  Admiral, you mentioned something very interesting in the scenarios as it was laid out and, as I understand it, with the consequences confronting you with the potential shutoff of supplies from Iran and Venezuela. Here is my question. In a situation such as that, you said that, by virtue of the fact that we are dealing with unfriendly States, that it almost becomes a de facto military situation. So the question is: In the scenario, where would the military deem to strike, if necessary, to recapture supplies—in this hemisphere or in the Middle East? Then bringing it to reality because, I think, that is what makes these useful, should Americans be concerned when we have, yet, another battle group doing maneuvers in the Persian Gulf?

Admiral BLAIR. I think the connection between the military force and oil supplies is a little more subtle than that. We do not go in and take over oil fields and sort of run them with soldiers and with contractors.

What I am saying is the fact that that region supplies a commodity, which is so fundamentally important to the United States, means that the United States is intellectively involved in the affairs of that region and will have to have a much deeper involvement in them so that, when one State threatens another or invades another as Iraq invaded Kuwait back in 1991, an issue in which military force clearly has an application, we will do it; we will use military force there. The military situations that clearly call for a military response in that part of the world are threatening to and closing the Strait of Hormuz, the scenario that we had in the tanker wars in the mid- 1980s when both Iraq and Iran were attacking oil tankers, and we ended up reflagging and escorting them.

So it is not so much that, militarily, we go in and take over oil fields, which is not a very useful alternative. It is that we are in the region, and when military force is used, the United States has got to consider what we do with our forces, and we kind of get sucked into it the way that we have over time. What I think is going on here is that, if the United States has a very great vulnerability of short-term interruptions in countries like Venezuela and Iran, who are no friends of this country, they can sort of throttle back for a while. It does not hurt them very badly. It hurts us. It gives them advantages across the board in dealing with their interests as opposed to ours, which result in change.

Ms. BROWNER. If I might just note, in this scenario, one of the things that did unfold from the Secretary of Defense was a question for the President. Should we change the Selective Service registration requirements to capture women? Secondly, should we begin thinking about some form of a draft? Because the concern in the scenario that he was bringing to the table is that the military is stretched very, very thin.

EDWARD J. MARKEY, MASSACHUSETTS,  CHAIRMAN. Under your scenario, only 1% of the world’s oil supply is taken off the market. It leads to $160-a-barrel oil. It leads to the collapse of the economy. What is it that has led to having the oil markets become so tight that they can have such a profound impact in such a short period of time?

Ms. BROWNER. I think in that scenario, it is a combination of factors, but certainly, the failure of efficiency, the failure to drive down the amount of oil we use on a daily basis becomes pretty important because while the actual number—it ends up at about 1 billion barrels a day. That is not an amount that cannot be addressed through some prudent steps taken, you know, sooner rather than later.

Admiral BLAIR. That was sort of a surprising effect. You would think, on a percentage basis, it would not be that big. The gameplay for that result was done by a highly-respected, Canadian energy consulting company that we fed the information to and then asked them ‘‘Okay. What did that do to the price of barrels?’’ They ran their quantitative models, in their judgment. What I think was at play there was that, with the oil market so tight in the future primarily because of the increases in non-U.S. production, India and China are leading it. You find that non-U.S. oil demand goes up 38 percent over, maybe, the next 5 years; whereas, U.S. demand goes up about 24%. That is just making the oil market so tight that the power of expectations comes to play, and even relatively small tremors make people worry about the future. Therefore, they want to ensure their own supplies, and they bid up prices. So you are just in this trigger in which a relatively small rock in the pond has pretty big ripples.

EDWARD J. MARKEY, MASSACHUSETTS,  CHAIRMAN. So you talk in your testimony, Admiral, about our ever-growing military presence in the Middle East. Could you give us some sense of how you feel, for example, as to how this growing dependence upon oil affects our relationship with Saudi Arabia?

Admiral BLAIR. I think it gives Saudi Arabia much greater leverage in its dealings with us, and it is no secret that there are a lot of aspects of Saudi Arabia in the future that we have real concerns about, and when you are that much—when a country with those sorts of challenges has that much of a thumb on you, it causes concern.

Ms. BROWNER. [A 35-mile-per-gallon standard by 2020] is absolutely essential. We have got to get on with doing this. As I said in my opening statement, this is the second time I have participated in one of these. The message from both of them was identical, that taking steps sooner rather than later is key to these problems. In the case of CAFE and the proposal that the Senate has passed, it would have solved the problem that we were confronting. It was not as if this scenario was designed to then conclude, well, you should have passed CAFE. It was just the fact of, when you go back and look at how it unfolded, that is one of the easiest ways, actually, to have solved the problem.

Admiral BLAIR. I am [sure we can improve efficiency without compromising vehicle safety]. I tell you the strongest technical support for that judgment was our updating of a study done by the National Academy of Sciences. The answer from these technical experts was, unambiguously, yes, it could. That was even without considering hybrids and some other, more recent technologies. We  think the burden of proof ought to be put on people saying why they cannot do it. What you hear from the auto companies, you know, is American consumers do not want it, you know, blah, blah, blah. So we think we ought to shift the burden in the other direction.

Ms. BROWNER. You know, at the EPA, I, obviously, got the chance to regulate the automotive industry, and they always said no, no, no, no, no. Then they always turned around and did it….there is no doubt in my mind that they can do it. They will complain loudly, but they will end up being able to do it.

JAMES SENSENBRENNER, JR., WISCONSIN. Everyone who stops to fill up at the pump, and that is most people in this country, know firsthand how the United States’ dependence on foreign oil affects them. They feel it in their wallet, pennies at a time, as the price of gas creeps up. And most Americans understand that the price of oil is often influenced by events around the world. I doubt the results of the Oil Shockwave simulations would surprise many Americans. But I bet many Americans don’t realize just how vast the energy supplies are in the United States. Beneath this great Nation there are enough energy reserves to propel us towards energy security; and surely we have the intellectual and scientific capacity to give us the energy security that all of us, Democrats and Republicans, desire. According to the Interior Department, there are potentially 120 billion—that is with a ‘‘b’’—barrels of untapped oil in the United States, including offshore reserves in Alaska, the Pacific and Gulf of Mexico. Add to that the potential of 635 trillion—with a ‘‘t’’— cubic feet of natural gas remains untapped, and we have got what we need to start weaning ourselves off the oil supplies from foreign countries that are hostile to the United States. But that is just the start. It is estimated that there are 250 billion tons of recoverable coal reserves, which is nearly six times the combined U.S. oil and natural gas reserves. In fact, it is believed that our coal supplies are larger than any single energy source of any single nation, including Saudi Arabia oil. The U.S. coal supply is equivalent to nearly 800 billion barrels of oil, more than three times the energy equivalent of Saudi Arabia’s oil.

EARL BLUMENAUER, OREGON.   I have been following the Oil Shock exercises for some time and have been intrigued by the power to be able to demonstrate how perilous we are balanced today on our petroleum dependence. In my community, we had, over a year ago, the city government forming a task force to explore these other entities, and 12 distinguished citizens came back with things that wouldn’t surprise our participants, but I think it was an important part in sort of driving where we are going. I appreciate the comments of the distinguished ranking member, but one of the downsides of what he is describing is that there are no technologies now available that don’t make the other part of our charge as a committee fighting against global warming and greenhouse gasses, it will that make it worse. The simple fact is that we are the largest consumer of petroleum. We are consuming it at a rate 10 times what our share of the world’s proven supplies are, and we are depleting our own reserves right now at a very rapid rate. And given our security concerns for the future, those ought to be the last areas that we try and pump as fast as we can, rather than the first or, in the case of the Arctic, the next.

One of the things that might be interesting would be for our committee to spend the better part of a day experiencing the simulation. Having dealt with the people who’ve designed it, having watched it from afar, I think that it might shake some of us out of our lethargy if we actually stopped pontificating and actually go through a simulation where we have to make some of these real-life decisions that we, as a Congress, have failed to mitigate. And if our committee might set the tone, Mr. Chairman, I think it might be—there might be other people on both sides of the aisle who would go through it. And if we could get even 10 percent of the Members of Congress to have to go through this, devoting only half a day, I think it would be a sort of a homework that might put some realism into what too often around here is, I think, rather hallow rhetoric. I think all of us ought to have the sense of urgency for the very reasons you said in our opening statement, and I would hope we might consider it because it is too good a model for us to at least not test.

==================

FYI, these are the people consulted to come up with a realistic Oil ShockWave simulation:

  • Bruce Averill, Senior Coordinator, Critical Infrastructure Protection Policy, U.S. Department of State
  • General Ronald Bath and Jaime Taylor, The RJ Bath Group
  • Kara Baynton, Senior Energy Analyst, ARC Financial
  • Rand Beers, former Special Assistant to the President and Senior Director for Combating Terrorism
  • Paul Domjan, Director, John Howell and Company
  • David Frowd, former Head of Strategy and Planning in Shell’s Upstream Headquarters
  • Richard Haass, President, The Council on Foreign Relations
  • Randall J. Larson, Director, The Institute for Homeland Security
  • Dr. Kimberly Marten, Department Chair, Political Science, Barnard College, Columbia University
  • Ronald E. Minsk, Counsel, Alston & Bird LLP
  • Daniel Poneman, Principal, The Scowcroft Group
  • David Sandalow, Senior Fellow, The Brookings Institute
  • Peter Tertzakian, Senior Energy Economist, ARC Financial
  • Jeff Werling, Executive Director, Inforum, University of Maryland Department of Economics
  • Robert F. Wescott, President, Keybridge Research LLC

 

Posted in Energy Dependence, Military, Oil Shocks | Tagged , , , | Leave a comment

Methane hydrates are still decades away

[ Back in2009 the DOE expected it to take until at least 2015 for methane hydrate production to begin, and now in 2016, the U.S. DOE is even more pessimistic, saying “the commercialization of methane hydrates is likely to be several decades away“, and that furthermore “much less than 1 % of all methane hydrate deposits could ever be commercially extractible, even at very high natural gas prices”.  Or perhaps never: see my post “Why we aren’t mining methane hydrates now — or perhaps ever“.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

House 111-32. July 30, 2009. Unconventional fuels part II: the promise of methane hydrates. U.S. House of Representatives. 50 pages

Excerpts:

We do not yet know if these accumulations exist in sufficient concentration to make them economically viable, nor do we know whether even concentrated accumulations can be developed economically.

Much more information is needed on: (1) the geology of the hydrate-bearing formations, both on a large scale (the distribution of hydrates throughout the world) and on a small scale (their occurrence and distribution in various host sediments); (2) the reservoir properties/characteristics of gas hydrate reservoirs; (3) the production response of various gas hydrate accumulations; and (4) the economics controlling the ultimate resource potential of gas hydrates.

Technical challenges

Gas hydrate wells will be more complex than most conventional and unconventional gas wells due a number of technical challenges, including:

  • Maintaining commercial gas flows with high water production rates
  • Operating with low temperatures and low pressures in the well-bore
  • Controlling formation sand production into the well-bore
  • Ensuring well structural integrity with reservoir subsidence

Technologies exist to address all of these issues, but will add to development costs. Gas hydrate development also has one distinct challenge compared to other unconventional resources, and that is the high cost of transportation to market.

Most gas fields require some compression to maximize reserve recovery, but this typically occurs later in the life of the field after production starts to fall below the plateau rate. For a gas hydrate development, the required pressure to cause dissociation will require the use of inlet compression throughout the life of the field including the plateau production time. This will require a larger capital investment for compression at the front end of the project, and will also result in higher operating costs over the life of the project.

Water production is not uncommon in gas wells, however water rates are typically less than say 10 bbls/MMscf (barrels of water per million standard cubic feet of gas) for water of condensation and/or free water production. Wells that produce excessive amounts of water are typically worked-over to eliminate water production or shut-in as non-economic. The water production from a gas hydrate reservoir could be highly variable, however water:gas ratios in excess of 1,000 bbls/MMscf are possible. This water must be removed from the reservoir and wellbore to continue the dissociation process. On this basis, a gas hydrate development will require artificial lift such as electric submersible pumps or gas lift, which will also increase capital and operating costs over the life of the field. But it is important to highlight that the water in gas hydrate contains no salts or impurities, it is fresh water and may be a valuable co-produced product of a gas hydrate development.

The combination of low operating pressures and high water rates will require larger tubing and flowlines for a gas hydrate development, in order to minimize friction losses and maximize production. Additional water handling facilities and water disposal will also be required. Larger inhibitor volume (such as glycol) will be required to prevent freezing and hydrate formation in tubing and flow-lines. Other items such as sand control, reservoir subsidence, down-hole chemical injection, possible requirements for near well-bore thermal stimulation, etc., will also require additional capital and operating costs for gas hydrate developments compared to conventional gas developments.

Onshore gas hydrates in North America are located on the North Slope of Alaska and on the Mackenzie Delta in Canada. These resources, along with significant volumes of already discovered conventional gas, are stranded without a pipeline to market. In order to compete for pipeline capacity, the economics of onshore gas hydrate developments must be attractive at prevailing gas prices.

By all estimates, the majority of gas hydrates considered for production are located in sandstone reservoirs in deepwater environments. Deepwater drilling technology and experience continues to evolve, and the worldwide deepwater fleet continues to expand. However the deepwater environment is still a very high cost and very high risk area of operation. Offshore gas hydrate developments must have strong economic drivers in order to compete with other deepwater exploration and development opportunities. Adding on the risk of gas hydrates is yet another level of risk to add onto the existing high-risk drilling in deep water.

Significant scientific and exploration work must be completed before gas hydrates can be considered as a viable source of natural gas. Critical among these tasks remains the validation reservoir and well performance through extended field testing that demonstrates the ability to produce gas hydrates at commercial rates with current technology.

So far the small-scale experiments have not been able to bring gas hydrates as far as the surface of the ocean.

On the basis of the studies done to date, gas hydrate developments will have capital and operating costs significantly higher than other unconventional or conventional developments due to well productivity, low operating pressures and temperatures, and high water production rates. Surface facilities for gas hydrate developments will also be higher due to the requirements for larger surface flowlines and inlet facilities (required because of low pressures and water production rates) and the requirement for inlet compression into the processing plant.

SBC. June 2015. Gas Hydrates. Taking the heat out of the burning-ice debate. Potential and future of Gas Hydrates. SBC energy institute.

it is largely agreed that, using current technologies, gas hydrates are likely to be more expensive to recover than most other gas resources.In most cases, gas-hydrate recovery is expected to require more wells per unit of space.Gas-hydrate recovery would also exhibit a higher water-to-gas ratio, which may require special facilities and oversized flow lines.  In addition, it involves dissociation operations e.g. using compressors and requires artificial-lift infrastructure and cutting-edge monitoring and control instruments.As well as exploration and production costs, gas-hydrate economics may also be affected in some regions by high transport costs:resources can be located far from markets, in harsh marine or permafrost environments, and face the usual “stranded gas” issue. Therefore the business case for gas hydrates would be improved in locations where synergies with conventional oil and gas operations could be leveraged.

In addition, deposits in permafrost environments would typically be cheaper to exploit than marine accumulations, because operations would be based on land. Gas hydrates seem very unlikely to be competitive in gas-rich regions.

The energy density of gas hydrates in situ is lower than that of conventional gas accumulations. This has important consequences for the economic viability of recovering methane hydrates, e.g. it is likely to require more wells.
98% of hydrate resources are estimated to be offshore and 2% in permafrost

A few of the many challenges (see pages 45-46 for others)

Significant amounts of sand can be produced if mitigation actions are not undertaken.In April 2007,a huge amount of produced sand led to the termination of the Mallik production test after 60 hours.
While sand-control devices such as sand screens can limit sand production, they can also cause production damage if they or the formation near the borehole become plugged with mobile solids.

Geomechanical hazards are less understood than other operational challenges faced by gas-hydrates production.In the absence of long-duration production test, they have not been yet empirically experienced, but only modeled by numerical reservoir simulators.Therefore, geomechanics is one of the biggest uncertainties associated with gas-hydrates production

As gas hydrates dissociate, the mechanical strength of the reservoir diminishes.Indeed,dissociation is accompanied by a decrease in the pressure of the formation and the removal of pore-filling “material”,which puts reservoir integrity at risk.This issue is particularly acute in shallow marine sediments and, as a result, it may be preferable to exploit deeper hydrate formations.In permafrost, the thickness of the overlying ice sheet and a smaller reduction in pressure should minimize the subsidence issue.

In addition, uncontrolled gas flow and sediment wellbore instability caused by the heating of sediments in the vicinity of production wells need to be monitored.Finally,horizontal well completion in shallow, unconsolidated sediments may be challenging.

Expensive monitoring

Gas-hydrate production requires the deployment of extensive monitoring systems in order to improve understanding of gas-hydrate dynamics ultimately optimizing recovery), but also to detect, prevent and mitigate potential safety and environmental hazards.

In Nankai Trough,for instance, two monitoring wells 2 were drilled in the vicinity of the production well as part of the production test.These wells were equipped with two types of temperature sensors: 1) Distributed Temperature Sensing (DTS) devices covering the entire borehole for autonomous, long-term monitoring measurement accuracy of +/- 0.5 ° C, and autonomous over 18 months; 2) Array-type Resistance Temperature Detector RTD devices placed across the gas hydrate reservoir with higher temperature resolution accuracy +/- 0.1 ° C for real-time monitoring during production tests.

In addition to pressure and temperature measurement, methane-emission detection and repair devices will be essential, especially in the Arctic

 

Posted in Energy Policy, Methane Hydrates | Tagged , | Leave a comment

Is there enough natural gas for everyone for everything?

[ Is there enough natural gas for products, utilities, AND transportation?  Alice Friedemann  www.energyskeptic.com]

Senate 113-1. February 12, 2013. Natural gas resources S. Hrg. 113-1. U.S. Senate.

ANDREW N. LIVERIS, CHAIRMAN & CEO, DOW CHEMICAL COMPANY. Dow is a major user of natural gas and natural gas liquids (NGL), both as an energy source and as feedstock for production of our products to drive the chemical reactions necessary to make useful products.

Dow’s global hydrocarbon and energy use amounts to the oil equivalent of 850,000 barrels per day, the daily energy use of Australia.

Natural gas is an essential component in thousands of everyday consumer products such as cars, appliances, paper, steel, plastic products, pharmaceuticals, and fertilizer for our farms. Natural gas provides heat, hot water, cooking and electric power to tens of millions of residential consumers.

The ingredients of natural gas are what we call feedstocks, natural gas liquids. The bounty of shale gas is, thanks to our great oil and gas sisters and brothers, they—the bounty, the geology, is that the gas is very wet, so-called NGO rich. A God-given gift. This is very unusual. The gas fields around the world are not as rich as U.S. gas fields. Therefore there’s a new unintended consequence, which is all the ingredients for everything from laptops to smart phones to pharmaceuticals to paints and varnishes to carpets to cosmetics, all the vital ingredients, 95% of them come from fossil fuels. The best and lightest fossil fuel is natural gas, so natural gas liquids should not be shipped overseas and be burnt in Japanese cooking ovens. It should be kept home so we can add value at 8 times by building these facilities. There’s $4 billion in Louisiana and Texas alone by Dow Chemical, $20 billion by Sasol, $15 billion by Shell to value-add. This is a big bet that we’re going to get responsible supply.

Energy is the lifeblood of an economy in all of its forms.

Opposition to export of LNG: You can’t move factories overnight, to state the obvious. Why put at risk the 5 million jobs, the $96 billion worth of investment that are on the books today? Over 60 companies, why put that at risk by doing either or? Why transfer the risk? So be cautious, do what the public interest demands and the DOE application process. I agree, financing will be difficult. I agree, prices will be volatile. But why take the risk and let the speculators set the gas price like they did 10 years ago, and we all remember the Enron’s and what the efficient market did for us 10 years ago. It was hardly efficient. OK. It was very inefficient.

Gas, as already noted, has to be liquefied and shipped at billions and billions of dollars. That is not an open market, that’s a point to point contract. There’s probably 30 of these contracts around the world from nation states to nation states.

The ingredients of natural gas are what we call feedstocks, natural gas liquids. The bounty of shale gas is, thanks to our great oil and gas sisters and brothers, they—the bounty, the geology, is that the gas is very wet, so-called NGO rich. A God-given gift. This is very unusual. The gas fields around the world are not as rich as U.S. gas fields. Therefore there’s a new unintended consequence, which is all the ingredients for everything from laptops to smart phones to pharmaceuticals to paints and varnishes to carpets to cosmetics, all the vital ingredients, 95% of them come from fossil fuels. The best and lightest fossil fuel is natural gas, so natural gas liquids should not be shipped overseas and be burnt in Japanese cooking ovens. It should be kept home so we can add value at 8 times by building these facilities. There’s $4 billion in Louisiana and Texas alone by Dow Chemical, $20 billion by Sasol, $15 billion by Shell to value-add. This is a big bet that we’re going to get responsible supply.

Energy is the lifeblood of an economy in all of its forms.

We’re in the 4th or 5th year of trying to understand what this bounty is. Can we produce it responsibly across the country? There are regions that differ already. We know that. The geology is different. We don’t know how much supply we have. Let’s be careful testing our country on when a market gets to maturity on liquidity risk. Why should we take the liquidity risk as a country in a totality while someone overseas benefits from our bounty.

MARY L. LANDRIEU, U.S. SENATOR FROM LOUISIANA. The wealth of natural gas is extraordinary, with estimates indicating America currently has 317 trillion cubic feet of proven, accessible reserves, and a further 2,000 tcf in total resource base estimates. This is enough to fulfill our current demand, a little over 24 bcf per day, for over 100 years.

Louisiana, Methanex Corporation, which moved its last U.S. plant overseas in 1999, is now spending over $1 billion to move a methanol plant from Chile to Ascension parish, near Baton Rouge. This plant will produce the raw materials for everything from windshield washer fluid to paints and sealants, even wrinkle free shirts. Williams, a petrochemical company based in Tulsa, is planning a new $400 ethylene plant also in Ascension parish, where they will supply our plastics manufacturers. Finally, CF Industries, one of the world’s largest producers of nitrogen fertilizer, is looking to spend $2.1 billion to build a new fertilizer plant in Ascension. That’s over $3.5 billion being invested in one parish in Louisiana, all thanks to our new abundance of domestic natural gas. Of course, that isn’t the whole story; nationwide, these same petrochemical, plastics, steel and fertilizer industries are planning to invest upwards of $80 billion in new plants and new capabilities.

ROSS EISENBERG, VP, ENERGY & RESOURCES POLICY, National Assoc of Manufacturers

The NAM is the nation’s largest industrial trade association, representing nearly 12,000 small, medium and large manufacturers in every industrial sector and in all 50 states. Manufacturers are major energy consumers, using one-third of the energy consumed in the United States.

The natural gas boom has provided major opportunities for manufacturers across the supply chain. Upstream, manufacturers design and construct drilling facilities; supply machinery and materials, such as cement and steel for hydraulic fracturing and well completion; and perform a wide range of support activities and services for the natural gas extraction process. Midstream, manufacturers provide needed infrastructure, such as pipelines, compressor stations, storage facilities and processing facilities. And downstream, the possibilities-from chemicals to windows to toys to electricity-are truly endless.

The natural gas manufacturing supply chain extends even further. All of this new activity will require roads and bridges, which, in turn, requires concrete, brick, gravel and steel. Drilling sites will need vehicles, fuel and significant water supplies- which will need to be supplied, transported and treated. Site employees will need uniforms, and those uniforms will need to be cleaned and maintained. The list goes on and on.

Chemical manufacturers had been the largest beneficiaries of this new abundance of natural gas, owing primarily to less expensive ethane, a natural gas liquid derived from shale gas. PwC identified Bayer Corporation, Chevron Phillips Chemical Company, Formosa Plastics Corporation and Westlake Chemical Corporation as companies taking early advantage of the shale gas boom.

PwC found that the benefits of shale gas for manufacturers were not limited to the major natural gas users; the benefits extended throughout the supply chain. According to PwC, companies that sell goods, such as metal tubular products and drilling and power equipment, were likely to experience near-term growth in sales as domestic natural gas production rates increased. PwC identified projects by U.S. Steel and Vallourec Ohio intended to supply steel pipe and related materials for shale gas extraction activities. These higher production levels would also yield benefits higher in the value chain, such as manufacturers of components used in drilling equipment. Overall, PwC found that 17 chemical, metal and industrial manufacturers commented in SEC filings in 2011 that shale gas development drove demands for their products, compared to none in 2008.

In the 13 months that have passed since PwC released its study, the impact of new supplies of natural gas on manufacturing has become even more pronounced. Nucor embarked on plans to develop a $750 million iron facility in Louisiana and announced a $3 billion joint venture with Canadian oil and gas producer Encana for 20 years of access to its natural gas wells.3 Mitsubishi announced plans to build an acrylic-resin processing plant adjacent to a newly constructed ethylene plant.4 Fertilizer manufacturer CF Industries announced that it will spend $2.1 billion to expand its fertilizer manufacturing operations.5 Formosa Plastics Corporation increased the size of its Texas ethylene plant included in the 2011 PwC6 report. Even foreign manufacturers are now seeking to build operations in the United States. Austrian steel manufacturer Voestalpine AG announced in late 2012 it plans to build a $661 million steel factory in the United States.7 South African energy company Sasol announced plans to construct America’s first commercial gas-to-liquids plant in Louisiana, an $11 billion-$14 billion venture.8 Egyptian fertilizer manufacturer Orascom Construction Industries plans to build a $1.4 billion nitrogen fertilizer production plant in Wever, Iowa.9 Canadian methanol producer Methanex announced in 2012 that it will dismantle a methanol plant in Chile and move it to Ascension Parish, Louisiana.10 BlueScope Steel Limited, an Australian company, is building a steel factory in Ohio in partnership with U.S. manufacturer Cargill.11 And Indian manufacturer Essar Global Limited is planning a steel facility for Minnesota.12

Last June, a report by independent global energy research firm IHS CERA predicted that the share of U.S. natural gas produced from unconventional sources will reach 67 percent by 2015 and 79 percent by 2035. (source: Fullenbaum, Richard, and John Larson, The Economic and Employment contributions of Unconventional Gas Development in State Economies, June 2012 http:// www.anga.us/media/content/F7D4500D-DD3A-1073-DA3480BE3CA41595/files/ statelunconvlgasleconomiclcontribution.pdf

This would lead to $3.2 trillion in investments to develop the resource.

Natural gas liquefaction is a manufacturing process. To convert natural gas to LNG, the gas is purified by removing any condensates, such as water, oil and mud, as well as other gases, such as carbon dioxide and hydrogen sulfide and trace amounts of mercury. The gas is then supercooled in several stages until it is liquefied and ready for shipping.

NATURAL GAS AND MANUFACTURING Industry relies on natural gas for much of its energy needs and as a raw material.

KENNETH B. MEDLOCK, III, JAMES A. BAKER, III, AND SUSAN G. BAKER, FELLOW IN ENERGY AND RESOURCE ECONOMICS, AND SENIOR DI- RECTOR, CENTER FOR ENERGY STUDIES, JAMES A. BAKER III INSTITUTE FOR PUBLIC POLICY RICE UNIVERSITY, HOUSTON, TX

Methanex has moved forward with plans to relocate its Chilean facility to Geismar, Louisiana, and Sasol has announced intent to move forward with a GTL project in Southwest Louisiana. In short, if price does stay low and relatively stable, it is possible that industrial demand could rise to levels not seen since the mid-1990s. This would represent an over 18% increase in industrial gas demand from its current levels. It is important to point out that the long term trend seen in the industrial demand sector bears resemblance to a cycle. Indeed, even the recent growth in industrial demand has been modest in comparison to power generation use. Nevertheless, the past few years have seen a renewal of industrial demand for natural gas. Moreover, the planned capital expenditures by gas-intensive industrial players are quite large.

US. POWER GENERATION DEMAND FOR NATURAL GAS. Natural gas demand in the power generation sector has substantial growth opportunity through fuel substitution, and it can occur in a relatively short time frame. In 2012 we saw a dramatic increase in the use of natural gas in power generation through substitution with coal. In fact, the natural gas share of power generation in 2012 rose to over 30%, which was up from an annual average of 17.9% just 10 years ago. This is in stark contrast to coal, which has seen its market share deteriorate from 50.8% to 36% in the same time frame. In fact, much of the drop in coal’s share in power generation is directly attributable to grid-level switching to natural gas. The rise of gas use at the expense of coal was primarily the result of relatively low natural gas prices, and the fact that there is sufficient natural gas generating capability to allow for large scale, grid-level fuel switching.

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Achieving U.S. energy independence with our “neighbors” oil

[ The main U.S. interest becoming more energy independent by getting oil from our “neighbors” Mexico, Colombia, Venezuela, Brazil, and Canada, while at the same time minimizing growing Chinese and Russian attempts to get their oil and other natural resources.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

House 114–12. February 3, 2015. The strategic importance of the western hemisphere defining U.S. interests in the region. 114th congress House of Representatives. 81 pages 

Jeff Duncan, South Carolina

Venezuela’s unstable situation, deteriorating economic conditions with major shortages and inflation at over 60 percent, declining oil production and human rights abuses also require sustained U.S. attention.

Energy opportunities abound in the region today. I am excited about the potential for U.S. energy exports from our neighbors in the hemisphereI believe we can do so much more on the energy front. The Western Hemisphere is home to nearly a third of the world’s oil and the region has nearly 337 billion barrels of estimated recovery in oil, and 20 percent of the world’s proven oil reserves.

The abundance of U.S. reserves in oil and natural gas and shale gas resources, the capability to export, liquefy and compress natural gas and the administration’s recent announcement of offshore drilling in the Atlantic, the U.S. has many reasons to partner with like-minded countries who seek to spur economic growth, achieve energy security, and reduce energy cost.

In the 113th Congress, I authored legislation to implement the Outer Continental Shelf Trans Boundary Hydrocarbon Agreement between Mexico and the United States.

Venezuela’s dire situation, resulting impact on its Petrocaribe program, has caused 18 Central American and Caribbean nations that receive its oil on preferential terms to look elsewhere for energy security. The U.S. is a natural partner for these policies.

On January 27th, the ranking member and I co-hosted an event with Members of Congress and Caribbean leaders who were in Washington for the Caribbean Energy Security Summit. We discussed ways to deepen energy cooperation to assist Caribbean nations in achieving energy security. Given current circumstances and the additional potential for offshore resources—resource exploration that Aruba, the Bahamas, the Dominican Republic and Trinidad are considering, U.S. businesses have a significant opportunity to engage.

Similarly, the potential for cooperation with Canada through the Keystone Pipeline and Mexico’s energy sector reforms could truly take us a long way toward becoming North American energy independent if we work together to achieve that goal. Likewise, energy opportunities in Argentina, Brazil, Colombia, and Peru could also make our hemisphere even more energy independent.

I remain deeply concerned about Iran’s actions in the Western Hemisphere with evidence of a growing presence of China, North Korea, and Russia here in the Americas. We must remain ever vigilant.

While our attention is often captivated by events in Asia, Europe, the Middle East, and North Africa, I do not believe that crises and firefighting should determine the level of a region’s priority for the United States. I have travelled extensively in the region—Argentina, Brazil, Canada, Colombia, Mexico, Paraguay and Peru both in my private life and also through official duties.

I also firmly believe that U.S. should pay more attention to countries in the Western Hemisphere. These countries by virtue of proximity, trade, travel or culture have the ability to truly influence the United States and our lack of focus on issues right here in our own neighborhood is a disservice to the American people and to our committed partners within the region.

U.S. disengagement, evidenced by unsustained U.S. attention and tactical rather than strategic approaches in the region, has enabled other actors to step into the vacuum of leadership. While countries in the Western Hemisphere do not experience the same level of chronic instability as others around the globe, this region is unique by virtue of its geography. With no ocean separating the Americas, both threats and opportunities in Canada, the Caribbean, and Latin America have a greater potential to impact the United States homeland and the American people as well as American businesses. Therefore, we must remain vigilant and truly engaged.

Over 68,000 unaccompanied children crossed the U.S.-Mexico border last summer. This subcommittee will work to keep the administration accountable to securing the U.S.-Mexico border and preventing a second surge of migrants from Central America through wise use of American tax dollars.

Since coming to Congress in 2011, I have had 3 simple priorities summarized by the acronym JEFF—create jobs for the American people, promote U.S. energy security and exports and return to the wisdom of our Founding Fathers.  I believe that we must recall the wisdom of our Founding Fathers. In 1793, George Washington warned a young America that a reputation of weakness could lead to a loss of America’s rank among nations and that if we desire to secure peace it must be known that we are at all times ready for war.

Albio Sires, New Jersey.  In 2015, Mexican President Enrique Pena Nieto was the first leader—the first head of state to visit Washington. With oil prices falling and the economies of oil-exporting nations like Venezuela hurting, the U.S. hosted a Caribbean energy summit that could help the region diversify their dependence from Petrocaribe.

In spite of an increasing Chinese presence, U.S. trade with the region was more than 3 times that of China in 2013. Canada is our number one trading partner and Mexico is a close third. Today, we are witnessing a global economic adjustment with a decline in oil and commodity prices. China’s economy is cooling and with it is demand for natural resources from key markets in South America.

Ron DeSantis, Florida. We have some important things that we need to tackle, most recently with what the administration has done with Cuba policy. Here you have a regime that was really struggling with their patrons in Moscow and Caracas, roiled by lower energy prices, and this is essentially a unilateral concession, a huge lifeline to the Castro government. I think it was a major mistake. We worked very hard on this committee last Congress to stand up for the people in Venezuela who were chafing under the Maduro regime. I think the administration has had a tepid response to that. Finally, there has been some action taken in the last few days but I think we have got to unequivocally stand with those freedom fighters in Venezuela.

And finally, we do have to be concerned with the rise of rogue state actors in our hemisphere and we have seen that with Iran. We have seen it with North Korea and we also have, of course, rival states like Russia and China who are seeking to have a foothold here.

Shannon K. O’Neil, PhD, senior fellow for Latin America studies, Council on Foreign Relations 

Home to nearly 500 million people living in three vibrant democracies, North America today is an economic global powerhouse. At over $20 trillion, the three nations of Canada, Mexico, and the United States account for over a quarter of global GDP.

I want to talk about two opportunities in particular that stand out for areas of cooperation and these are energy and economic competitiveness. Starting with energy—never before have the energy prospects of these three nations been so dynamic as they have been transformed by new energy finds in the three nations, by new technologies and by new rules, particularly in Mexico, that are together unleashing an unanticipated potential. An increasing energy production so far has brought jobs, it has boosted economic growth and it has lowered prices for industrial and individual consumers in all three nations. Now, as each of these 3 countries undergo their own changes and transformations, energy should become a fundamental pillar for the North American partnership. Greater regional cooperation and integration will boost economic, geopolitical, and environmental benefits for these three nations. To truly harness North America’s energy promise, the United States should work closely with its neighbors to integrate North America’s energy markets. So this will involve significant investment in resources, in cross border infrastructure and electricity grids, so physically linking North America’s energy fields, refineries and markets. It will also mean developing regional energy strategies and environmental standards, coordinating on issues such as regulations, safety procedures, energy efficiency guidelines and technologies for lower carbon energy.

Over the past two decades North America’s economic ties have deepened dramatically by virtually all measures. Today, each of these nations is the others’ largest trading partners with intra-regional trade of over $1 trillion a year, and as important is the changed nature of this trade, reflecting the rise of a truly regional production platform. So rather than sending each other finished products the United States, Mexico and Canada today trade in pieces and parts. So this back and forth along assembly lines, between plants and between these countries in the making of every car, every plane, every flat screen TV or computer it means for every item that is imported from Mexico to the United States, 40% of its value on average, was actually made in the United States and for Canada the number is 25%.

It also means prioritizing and completing free trade agreements with which the United States, Canada, and Mexico are all part, specifically today the Trans-Pacific Partnership, and it should mean incorporating our North American neighbors and other free trade agreements we consider including the Trans-Atlantic Trade and Investment Partnership, or TTIP, with Europe. Now, the costs of not engaging our neighbors are even higher than they have been in the past. In a world of regional blocs, deepening U.S. ties with its economic allies and particularly its neighbors will help maintain our national competitiveness, and America’s dream of energy self-sufficiency depends, too, on its neighbors, on linking energy and electricity grids to ensure safe, stable and resilient supplies.

Bonnie Glick, Senior VP, Global Connect division, Meridian International Center

Colombia’s oil giant, Ecopetrol, is a company that is well managed with revenues of nearly $38 billion. The current downturn in oil prices has certainly impacted Ecopetrol, but its asset base and reserves will allow it to weather the economic storm.

Brazil has the largest offshore oil discovery on Earth. The deep water offshore exploration and production will continue and expand in the decades to come. Brazil’s oil industry, with the opportunities for investment by American oil companies, means that U.S. oil can diversify their holdings and can weather global economic storms with less risk.

Chile remains a financial and mining industry giant in the region, but the newly returned presidency of Michelle Bachelet has many an industry seeing the return of more socialist tendencies that are less business friendly. The new tax regime will be the first test of the global business community’s patience with Chile.

I wish to highlight the four challenges in Latin America and the Caribbean—organized crime, Russia, Islamic radicalism, and China. The passage of drugs, immigrants, and illicit goods through the region to the United States continues to fuel criminal organizations, deepening the crisis violence and the lack of opportunity in those societies. El Salvador’s facilitation of a truce between Mara Salvatrucha and Barrio 18 in 2012 and the Guatemalan President Otto Perez Molina’s appeal to legalize drugs to reduce the violence and criminality in his country shows just how desperate the situation has become. Trans-Pacific crime also merits more attention. Recent examples include the sourcing of precursor chemicals by the Sinaloa cartel from Chinese mafias, metal ore shipments to China from cartelcontrolled parts of Michoacan and the use of Chinese banks to launder money by the Brazilian gang First Capital Command.

Evan Ellis, Ph.D. Author. Russia is the external actor which has most openly challenged the United States in Latin America. Since 2008, it has repeatedly deployed military aircraft, warships, and submarines close to the United States including three port calls in Havana by the signals intelligence ship Viktor Leonov most recently on January 20th, the day before our U.S. Government team headed toward Havana to meet with Cuban officials. Russia’s defense minister, Sergei Shoigu, said last February that his country seeks to resupply and maintain its warships in Nicaragua, Cuba, and Venezuela; to operate its military aircraft from their airfields, and possibly to reopen the Cold War era surveillance facility at Lourdes, Cuba. Last November, Minister Shoigu further said that Russia would send long-range bombers to fly patrols near the U.S. including in the Caribbean and the Gulf of Mexico.

Latin America is also a source of terrorist financing including the narco trafficker Chekry Harb and the money launderer Ayman Joumaa, who channeled part of their drug earnings to Hezbollah and other terrorist organizations. Terrorists also conduct operations in the region. Just 3 months ago, for example, Hezbollah operative Muamad Amadar was arrested near Lima, Peru, stockpiling explosives for use in that country.

China—the PRC has most significantly impacted the region’s security environment although not openly challenging the United States. Of the more than $100 billion it has loaned to the region since 2005, three-quarters of that have gone to the ALBA regimes in Argentina, helping to keep governments like Venezuela’s solvent so that they could continue to operate as bases for criminals and as entry points for other actors who would do us harm. China has also chosen CELAC, which excludes the United States and Canada, rather than the Organization of American States as its preferred vehicle for building its relationships with the region.

The PRC has expanded its military activities in Latin America, undermining U.S. efforts to remain the security partner of choice. In October 2013, while Washington was distracted by the budget crisis, a PLA naval flotilla for the first time conducted combat exercises with our allies in Chile as well as with Brazil. Chinese companies sell military aircraft, helicopters, satellites, trucks and armored vehicles to both U.S. partners and its adversaries in the region and possibly sales to Argentina of the FC–1 fighter, the P–18 Corvette, the X–11 helicopter and the V–1 armored personnel carrier.

Eric Farnsworth, VP, Council of the Americas and Americas society. 

I would submit to you today that strategic U.S. interests in the Western Hemisphere are as profound as our interests almost anywhere else on the globe. The region is directly connected to our own day to day well-being from economic prosperity and growth to national and energy security

 

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Human conflict arising from natural resources

Bruch, C., et al. July 20, 2012.  Human Conflict: Targeting Natural Resources.  Science 337:291-292 

The special issue on Human Conflict (18 May, p. 818) largely ignores a central dimension of violent conflict: the complex role of natural resources in the onset (Ross 2004) and conduct of conflict, peacemaking, and recovery from conflict.

Grievances over access to land have been central to wars in countries such as Guatemala, El Salvador, and Nepal (Macours 2011, Kay 2002). Inequitable distribution of oil and gas revenues drove secessionist conflicts in places such as Indonesia’s Aceh and southern Sudan (Collier 2012).

Since the end of the Cold War, conflicts based on resources have grown rapidly in number: Armed groups in at least 18 conflicts have relied on revenues from diamonds, timber, coltan, and a range of agricultural crops from cacao to coca (UN 2009). For centuries, armies have targeted natural resources and the environment to deprive enemies of cover, food, and support (Austin 2000), and the increased use of resources to finance conflicts has enhanced their value as a military objective (Autessere 2010).

Between 1946 and 2008, 40 to 60% of all intrastate conflicts were linked to natural resources. Resource-related conflicts are more likely to relapse, and do so twice as quickly compared with situations following conflicts without a link to natural resources (Rustad 2010).

There is growing recognition of the role of natural resources in building peace. A 4-year research project coordinated by the Environmental Law Institute, the United Nations Environment Programme, the University of Tokyo, and McGill University found that between 1989 and 2004, 51 of 94 peace agreements had provisions relating to natural resources, and all major peace agreements since then have included natural resources (UN 2012).

This study’s analysis of experiences across more than 60 conflict-affected countries shows that successful peacebuilding can rely on aspects of natural resource management in terms of livelihoods and macroeconomic recovery; the provision of basic services, including water, sanitation, and electricity; governance and rule of law; and cooperation. For example, approximately 60 to 80% of livelihoods in conflict-affected countries depend directly on land, forests, and other natural resources; over 50% of a post-conflict country’s gross domestic product usually comes from agriculture and extractive industries; and 50 to 80% of exports (and sometimes more than 95%) come from natural resources (Bruch 2012, Lujala, ILO).

Austin, J. E., Austin, C. E. Bruch, Eds. 2000. The Environmental Consequences of War: Legal, Economic, and Scientific Perspectives (Cambridge Univ. Press, Cambridge).

Autessere, S. 2010. The Trouble with the Congo: Local Violence and the Failure of International Peacebuilding (Cambridge Univ. Press, New York).

Bruch, C, et al. 2012. International Law, Natural Resources and Post-conflict Peacebuilding: From Rio to Rio+20 and Beyond. Rev. Eur. Commun. Int. Environ. Law 21, 44.

Collier, P., et al. 2012. High-Value Natural Resources and Post-Conflict Peacebuilding, P. Lujala, S. A. Rustad, Eds. (Earthscan, London), pp. 297–312.

Kay, C. 2001. Reflections on rural violence in Latin America. Third World Quart. 22, 741.

ILO. LABORSTA. International Labour Organization. (http://laborsta.ilo.org)

Lujala, P. S. A. Rustad, Eds., High-Value Natural Resources and Post-Conflict Peacebuilding (Earthscan, London).

Macours, K. 2011. Increasing inequality and civil conflict in Nepal. Oxford Econ. Pap. 63.

Ross, M. 2004. Resisting cultural standardization: Comhaltas Ceoltoiri Eireann and the revitalization of traditional music in Ireland. J. Peace Res. 41, 227.

Rustad, S.A., et al. 2010. “Rapid recurrence: Natural resources, armed conflict, and peace,” (Centre for the Study of Civil War, working paper, Oslo, Norway).

UN. 2009. From Conflict to Peacebuilding: The Role of Natural Resources and the Environment (Nairobi). United Nations Environment Programme
UN. 2012. Greening the Blue Helmets: Environment, Natural Resources, and Peacekeeping (Nairobi).  United Nations Environment Programme.

Posted in Caused by Scarce Resources, Human Nature, Wars | Tagged | 1 Comment

Schlesinger predicts investments in 2006 will cause oil glut and denial of peak oil in future

Energy Security and Oil Dependence. Two Senate hearings from 2006.

In these two 2006 hearings (excerpts below), there is a constant refrain of our dependence on oil,  yet now, many congressional hearings are about our energy independence.  Apparently congress has forgotten this testimony of James Schlesinger, former Secretary of Defense:

“By about 2010, we should see a significant increase in oil production as a result of investment activity now under way. There is a danger that any easing of the price of crude oil will, once again, dispel the recognition that there is a finite limit to conventional oil.  In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.”

More importantly, we face a fundamental, longer term problem. In the decades ahead, we do not know precisely when, we shall reach a point, a plateau or peak, beyond which we shall be unable further to increase production of conventional oil worldwide. We need to understand that problem now and to begin to prepare for that transition.

The underlying problem is that for more than three decades, our production has outrun new discoveries. Most of our giant fields were found 40 years ago and more. Even today, the bulk of our production comes from these old—and aging—giant fields. More recent discoveries tend to be small with high decline rates—and are soon exhausted. Since the issue is crucial—and is not widely understood—I have prepared a chart which lays bare the problem.

The upshot is, quite simply, that, as the years roll by, the entire world will face a prospectively growing problem of energy supply. Moreover, we shall inevitably see a growing dependency on the volatile Middle East.The United States is today the preponderant military power in the world. Still, our military establishment is heavily dependent upon oil. At a minimum, the rising oil price poses a budgetary problem for the Department of Defense at a time that our national budget is increasingly strained. Moreover, in the longer run, as we face the prospect of a plateau in which we are no longer able, worldwide, to increase the production of oil against presumably still-rising demand, the question is whether the Department of Defense will still be able to obtain the supply of oil products necessary for maintaining our military preponderance. In that prospective world, the Department of Defense will face all sorts of pressures at home and abroad to curtail its use of petroleum products, thereby endangering its overall military effectiveness.”

Former CIA director Woolsey predicts that the Saudi’s can lower prices to stop our development of shale oil or tar sands:

“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, 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-1980s. For the foreseeable future, as long as vehicular transportation is dominated by oil as it is today, the Greater Middle East, and especially Saudi Arabia, will remain in the driver’s seat.”

Woolsey also nails the main problem of future oil shortages:

“The current transportation infrastructure is committed to oil and oil-compatible products. This fact substantially increases the difficulty of responding to oil price increases or disruptions in supply by substituting other fuels. There is a range of fuels that can be used to produce electricity and heat and that can be used for other industrial uses, but petroleum and its products dominate the fuel market for vehicular transportation…  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.”

Our transportation system doesn’t have any oil substitute for the trucks, locomotives, and ships that do the actual work of civilization, which mainly have diesel engines that can only burn diesel — not gasoline, ethanol, diesohol, or other products. These diesel engines are so powerful and so efficient that Vaclav Smil argues diesel engines are as important as the diesel fuel they burn for the level of civilization we have now. I discuss the “liquid fuels transportation crisis” at great length in my book “When Trucks Stop Running“, which is mainly about what other fuels could substitute for oil, and whether heavy-duty transportation (i.e. locomotives and trucks) can be electrified.

Copulos points out that the hidden costs of oil were $780 billion in 2005, and that the military is becoming ever more dependent on oil, so shortages in the future could hamstring them. Presumably the hamstringing refers to future oil wars as the Great Game grows more desperate.

Jason Grumet at the National Commission on Energy Policy states that “Energy independence is simply unrealistic and has been ever since President Nixon first proposed to enshrine it as a national goal in the 1970s.”  He explains this is because the U.S. consumes a quarter of world oil but has “less than 3% of the world’s proved oil reserves, while 61% of world reserves are in the Middle East”.  He points out we will also be more dependent on foreign natural gas “given declining domestic production of natural gas—another fuel that plays an extremely important role in the U.S. economy. It appears inevitable that we will increasingly need to rely on overseas sources .”  He’s not wrong about that, despite the glut of fracked natural gas we have now. Like oil, natural gas is not going to last forever (see Peak Natural Gas).

Vinod Khosla makes grand promises about ethanol below.  His fortunes have fallen greatly since then.  60 minutes did a devastating piece on him in 2014 titled: The Cleantech crash: despite billions invested by the U.S. government in so-called “cleantech energy”, Washington and Silicon Valley have little to show for it”. And he is being sued for$75 million by the state of Mississippi for misleading investors about the quantities and yields of biofuels the KiOR cellulosic ethanol plant could produce, which is now bankrupt.  On top of that, Khosla is detested in California for closing off beach access to his property and demanding $30 million to allow access.

In 2016, cellulosic ethanol is still not commercialAnd not likely to ever be commercialAnd since diesel engines can’t burn ethanol or diesohol, irrelevant.

Former Senator Biden of Delaware, now Vice President, says “There can no longer be any doubt that our dependence on oil is a critical problem, one that must be addressed. The sheer size of this problem is such that there will be no quick fix“.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

1. Senate 109-860. May 16, 2006. Energy security and oil dependence. U.S. Senate hearing. 61 pages.

2. Senate 109-64. June 2006. Energy diplomacy and security. a compilation of statements by witnesses before the Committee on Foreign Relations. U.S. Senate. 98 pages

Excerpts from these two documents follow.

JAMES SCHLESINGER, former Secretary of Defense

By about 2010, we should see a significant increase in oil production as a result of investment activity now under way. There is a danger that any easing of the price of crude oil will, once again, dispel the recognition that there is a finite limit to conventional oil.

In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.

More importantly, we face a fundamental, longer term problem. In the decades ahead, we do not know precisely when, we shall reach a point, a plateau or peak, beyond which we shall be unable further to increase production of conventional oil worldwide. We need to understand that problem now and to begin to prepare for that transition.

The underlying problem is that for more than three decades, our production has outrun new discoveries. Most of our giant fields were found 40 years ago and more. Even today, the bulk of our production comes from these old—and aging—giant fields. More recent discoveries tend to be small with high decline rates—and are soon exhausted. Since the issue is crucial—and is not widely understood—I have prepared a chart which lays bare the problem.

The upshot is, quite simply, that, as the years roll by, the entire world will face a prospectively growing problem of energy supply. Moreover, we shall inevitably see a growing dependency on the volatile Middle East. We shall have to learn to live with degrees of insecurity—rather than the elusive security we have long sought.

The United States is today the preponderant military power in the world. Still, our military establishment is heavily dependent upon oil. At a minimum, the rising oil price poses a budgetary problem for the Department of Defense at a time that our national budget is increasingly strained. Moreover, in the longer run, as we face the prospect of a plateau in which we are no longer able, worldwide, to increase the production of oil against presumably still-rising demand, the question is whether the Department of Defense will still be able to obtain the supply of oil products necessary for maintaining our military preponderance. In that prospective world, the Department of Defense will face all sorts of pressures at home and abroad to curtail its use of petroleum products, thereby endangering its overall military effectiveness.

The problem of energy security is of relatively recent origin. When mankind depended upon windmills, oxen, horses, etc., energy security was not a strategic problem. Instead, as a strategic problem it is a development of modem times—and reflects most crucially the turn to fossil fuels as increasingly the source of energy. The Industrial Revolution in the 19th century, strongly reinforced by the rapid growth of oil-dependent transportation in the 20th, unavoidably posed the question of security of supply. Imperial Germany took over Lorraine with its coal fields after the Franco-Prussian War—to insure its energy security. When Britain, pushed by Churchill, converted its Navy to oil early in the 20th century, it sought a secure supply of oil under its own control in the Persian Gulf—which incidentally increased its concern for the security of the Suez Canal. For the United States, where the production of oil had started and for long was primarily located, the question of security of supply did not arise until the 1960s and 1970s. Since then, we have regularly talked about—and sought by various measures—to achieve greater energy security. Such measures, limited as they were, have generally proved unsatisfactory. The nation’s dependence on imported hydrocarbons has continued to surge.

Until such time as new technologies, barely on the horizon, can wean us from our dependence on oil and gas, we shall continue to be plagued by energy insecurity. We shall not end dependence on imported oil nor, what is the hope of some, end dependence on the volatile Middle East—with all the political and economic consequences that flow from that reality.  Instead of energy security, we shall have to acknowledge and to live with various degrees of insecurity.

In addition to the long-term problem of the prospective limit on conventional oil production, we have a number of short-term or cyclical problems that have contributed to the current stringency and current high prices. Spare production capacity has essentially disappeared. This reflects the volatility of oil prices, which has led to a low rate of investment in new capacity, as well as an unexpected surge of demand, particularly from China and the United States. For many years, we have had excess capacity in refining. That, too, has largely disappeared, and we lack capacity to refine the heavy, sour crudes that remain available. Here in the United States, the problem has been amplified by the battering of gulf infrastructure by Hurricanes Katrina and Rita. We also have an added, self-inflicted problem of some 17 boutique blends of gasoline, mandated by state authorities.

The insurgency in Iraq has prevented the increase in production, even to the prewar level, that many expected. Long-term sanctions against Iraq, Iran, and Libya, both United States and international, have reduced their contribution to world supply.

In no way do the prospective investment decisions solve the long- term, fundamental problem of oil supply.

The effect of higher oil prices has been significantly higher incomes for producers. A much higher level of income has meant that a range of nations, including Russia, Iran, Venezuela, as well as gulf Arab nations have had their economic problems substantially eased. As a result, they have become less amenable to American policy initiatives. Perhaps more importantly, the flow of funds into the Middle East inevitably has added to the moneys that can be transferred to terrorists. As long as the motivation is there and controls remain inadequate, that means that the terrorists will continue to be adequately or amply funded. To the extent that we begin to run into supply limitations and to the extent that we all grow more dependent on the Middle East, this problem of spillover funding benefits for terrorists is not going to go away.

Of the well over $700 billion of that deficit, some $300 billion comes from oil and gas. It is recognized that the U.S. balance-of-payments deficit represents the locomotive that drives much of the world’s economies. In performing this service—for which we get little thanks—the United States is steadily adding to its financial obligations to others. How long this process can continue is uncertain, but high oil prices add to the dilemma.

JAMES WOOLSEY, Former CIA Director   

There are at least seven major reasons why dependence on petroleum and its products for the lion’s share of the world’s transportation fuel creates special dangers in our time. These dangers are all driven by rigidities and potential vulnerabilities that have become serious problems because of the geopolitical realities of the early 21st century. Those who reason about these issues solely on the basis of abstract economic models that are designed to ignore such geopolitical realities will find much to disagree with in what follows. Although such models have utility in assessing the importance of more or less purely economic factors in the long run, as Lord Keynes famously remarked: ‘‘In the long run, we are all dead.’’

PETROLEUM DEPENDENCE: THE DANGERS

  1. The current transportation infrastructure is committed to oil and oil-compatible products.

This fact substantially increases the difficulty of responding to oil price increases or disruptions in supply by substituting other fuels. There is a range of fuels that can be used to produce electricity and heat and that can be used for other industrial uses, but petroleum and its products dominate the fuel market for vehicular transportation.

Moreover, in the 1970s about 20% of our electricity was made from oil—so shifting electricity generation toward, say, renewables or nuclear power could save oil. But since today only about 3% of our electricity is oil-generated, a shift in the way we produce electricity would have almost no effect on the transportation or oil 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 onboard 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’’ that ‘‘hydrogen offers little to no potential to improve oil security and reduce climate change risks in the next 20 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.

  1. 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. This demand is expected to increase by more than 50% in the next two decades, from 78 million barrels per day (bbl/d) in 2002 to 118 bbl/d in 2025, according to the Federal Energy Information Administration. Much of this will come from expected demand growth in China and India. 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, for example. 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.

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, 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-1980s. For the foreseeable future, as long as vehicular transportation is dominated by oil as it is today, the Greater Middle East, and especially Saudi Arabia, will remain in the driver’s seat.

  1. 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 what has occurred to date—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 in northeastern Saudi Arabia), could take some 6 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. The recent accident in the Texas City refinery—producing multiple fatalities— points out potential infrastructure vulnerabilities, as of course does this 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. Nor is anything particularly useful accomplished by changing trade patterns. To a first approximation there is one worldwide oil market and it is not generally useful for the United States, 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.

  1. The possibility exists, particularly under regimes 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 seventh century. Bin Laden has advocated, for example, major reductions in oil production and oil prices of $200/barrel or more. 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 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.

  1. 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 Shiite 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 United States, 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 1930s—between Wahhabis’ attitudes toward al-Qaeda and like-minded Salafist jihadi groups today and Stalinists’ attitude toward Trotskyites some 60 years ago. The only difference between Stalinists and Trotskyites was on the question whether allegiance to a single state was required or whether freelance killing of enemies was permitted. But 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 Shi’a, Jews, and homosexuals. So Wahhabi teaching basically supports al-Qaeda ideology.

It is sometimes contended that we should not seek substitutes for oil because disruption of the flow of funds to the Greater Middle East could further radicalize the population of some states there. The solution, however, surely lies in helping these states diversify their economies over time, not in perpetually acquiescing to the economic rent they collect from oil exports and to the uses to which these revenues are put.

  1. The current account deficits for a number of countries create risks ranging from major world economic disruption to deepening poverty, and could be substantial reduced by reducing oil imports

The United States in essence borrows about $2 billion a day, every day, principally now from major Asian states, to finance its consumption. The single largest category of imports is the approximately $1 billion per working day 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 United States and its trading partners. For developing nations, the service of debt is a major factor in their continued poverty. For many, debt is heavily driven by the need to import oil that at today’s oil prices cannot be paid for by sales of agricultural products, textiles, and other typical developing nation exports.

  1. Global-warming gas emissions from man-made sources create at least the risk of climate change

Although the point is not universally accepted, the weight of scientific opinion suggests that global warming gases produced by human activity form one important component of potential climate change. Oil products used in transportation provide a major share of U.S. man-made global warming gas emissions.

 

MILTON R. COPULOS, President, National Defense Council Foundation, Alexandria, VA

America is rushing headlong into disaster. What is worse, however, is that it is a disaster of our own design. More than three decades have passed since the 1973 Arab Oil Embargo first alerted the nation to its growing oil import vulnerability. Yet, despite this warning, we are now importing more than twice as much oil in absolute terms than we did in 1973, and the proportion of our oil supplies accounted for by imports is nearly double what is was then.

What makes this dependence even more dangerous than it was three decades ago is the fact that the global market has become a far more competitive place with the emerging economies of China, India, and Eastern Europe creating burgeoning demand for increasingly scarce resources.

Indeed, over the past decade the Chinese economy has grown at a frenetic pace, officially estimated at 9.2% in 2005. India’s growth rate for that year was 7.1%. In Eastern Europe, Belarus grew at 7.8%, the Czech Republic at 4.6%, and the Ukraine at 4.4%. This compares with 3.5% for the United States, 2.1% for Japan, and 1.7% for the European Union. As a result of this explosive growth, oil consumption in the developing countries is expected to increase at a rate of 3% annually over the next two decades. But even this figure may severely understate the problem. Indeed, China alone has accounted for 40% of the total increase in world oil consumption over the past several years. Moreover China plans to add 120 million vehicles to its automobile fleet over the next decade, ultimately requiring 11.7 million barrels per day of new crude oil supplies. India, too, is expected to continue to require increasingly large amounts of oil with a projected increase of 28% over just the next 5 years. Even conservative estimates suggest that nearly 30 million barrels per day of new oil supplies will be required by the year 2025 just to service the developing world’s requirements. When Europe and the Americas are included the requirement is closer to 40 million barrels per day. It is doubtful that new supplies sufficient to meet this skyrocketing demand will be found from conventional sources.

Nor is it just the potential physical shortfall of resources that is a source of concern. An even greater concern lies in the instability of U.S. sources of oil imports. The top six sources of U.S. oil imports, Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, and Iraq account for 65.1% of all foreign crude reaching our shores and 38.9% of total domestic consumption. Of these, four, Saudi Arabia, Venezuela, Nigeria, and Iraq provide 38.2% of oil imports and 22.6% of total consumption. For a variety of reasons, none of the four I just mentioned can be considered a reliable source of supply. Venezuela’s President Hugo Chavez is a vocal opponent of the United States who has twice threatened to cut off oil shipments to the United States. Nigeria’s production has been repeatedly disrupted by civil unrest, and some 135,000 barrels of oil per day are lost to theft. Last month, a terrorist attack on the massive Saudi oil processing facility at Abqaiq was barely thwarted, but not before two of the terrorist’s explosive-laden cars were detonated. Moreover, this was not the only instance of an attempt to disrupt the flow of Saudi oil. In the summer of 2002, Saudi Interior Ministry forces blocked an al-Qaeda plot to attack and cripple the loading dock at Ras Tanura which handles 10% of the world’s oil supplies.

Attacks on oil facilities in Iraq are a frequent occurrence. Nor are the attacks on U.S. oil supplies a coincidence. In December of 2004, al-Qaeda issued a fatwa that said in part: We call on the mujahideen in the Arabian Peninsula to unify their ranks and target the oil supplies that do not serve the Islamic nation but the enemies of this nation. The fatwa went onto declare: Be active and prevent them from getting hold of our oil and concentrate on it particularly in Iraq and the Gulf.

Clearly, given the instability that characterizes four of our top six sources of oil, the question is not whether we will experience a supply disruption, but rather when. The disruption could occur as a consequence of a terrorist act, or could result from a politically motivated embargo. In the end, it doesn’t really matter why a disruption occurs, because the consequences would be identical, and severe.

The supply disruptions of the 1970s cost the U.S. economy between $2.3 trillion and $2.5 trillion. Today, such an event could carry a price tag as high as $8 trillion—a figure equal to 62.5% of our annual GDP or nearly $27,000 for every man, woman, and child living in America. But there is more cause for concern over such an event than just the economic toll.

A supply disruption of significant magnitude, such as would occur should Saudi supplies be interdicted, would also dramatically undermine the nation’s ability to defend itself.

Oil has long been a vital military commodity, but today has taken on even more critical importance. Several examples illustrate this point:

  • A contemporary U.S. Army Heavy Division uses more than twice as much oil on a daily basis as an entire World War II field army.
  • The roughly 582,000 troops dispatched to the Persian Gulf used more than twice as much oil on a daily basis as the entire 2-million man Allied Expeditionary Force that liberated Europe in World War II.
  • In Operation Iraqi Freedom, the oil requirement for our Armed Forces was 20% higher than in the first gulf war, Operation Desert Storm, and now amount to one barrel of refined petroleum products per day for each deployed service member.

Moreover, the military’s oil requirements will be even higher in the future. Therefore, a shortage of global oil supplies not only holds the potential to devastate our economy, but could hamstring our armed forces as well.

While it is broadly acknowledged that our undue dependence on imported oil would pose a threat to the nation’s economic and military security in the event of a supply disruption, less well understood is the enormous economic toll that dependence takes on a daily basis.

In October 2003, my organization, The National Defense Council Foundation, issued ‘‘America’s Achilles Heel: The Hidden Costs of Imported Oil,’’ a comprehensive analysis of the external costs of imported oil. The study entailed the review of literally hundreds of thousands of pages of documents, including the entire order of battle of America’s Armed Forces and more than a year of effort. Its conclusions into divided the externalities into three basic categories: Direct and Indirect economic costs, Oil Supply Disruption Impacts, and Military Expenditures. Taken together, these costs totaled $304.9 billion annually, the equivalent of adding $3.68 to the price of a gallon of gasoline imported from the Persian Gulf.

As high as these costs were, however, they were based on a crude oil refiner acquisition cost of $26.92. Today, crude oil prices are hovering around $60 per barrel and could easily increase significantly. Indeed, whereas in 2003 we spent around $99 billion to purchase foreign crude oil and refined petroleum products, in 2005 we spent more than $251 billion, and this year we will spend at least $320 billion.

But skyrocketing crude oil prices were not the only factor affecting oil-related externalities. Defense expenditures also changed. In 2003, our Armed Forces allocated $49.1 billion annually to maintaining the capability to assure the flow of oil from the Persian Gulf.

I should note that expenditures for this purpose are not new. Indeed, last year marked the 60th anniversary of the historic meeting between Saudi monarch King Abdul Aziz and U.S. President Franklin Roosevelt where he first committed our nation to assuring the flow of Persian Gulf oil—a promise that has been reaffirmed by every succeeding President, without regard to party.

In 1983 the implicit promise to protect Persian Gulf oil supplies became an explicit element of U.S. military doctrine with the creation of the United States Central Command, CENTCOM.

CENTCOM’s official history makes this clear stating in part: Today’s command evolved as a practical solution to the problem of projecting U.S. military power to the gulf region from halfway around the world. I am stressing the longstanding nature of our commitment to the gulf to underscore the fact that our estimates of military expenditures there are not intended as a criticism. Quite the opposite, in fact. Without oil our economy could not function, and therefore protecting our sources of oil is a legitimate defense mission, and the current military operation in Iraq is part of that mission.

To date, supplemental appropriations for the Iraq War come to more than $251 billion, or an average of $83.7 billion per year. As a result, when other costs are included, the total military expenditures related to oil now total $132.7 billion annually.

So, where does that leave us? In 2003, as noted, we estimated that the ‘‘hidden cost’’ of imported oil totaled $304.9 billion. When we revisited the external costs, taking into account the higher prices for crude oil and increased defense expenditures we found that the ‘‘hidden cost’’ had skyrocketed to $779.5 billion in 2005. That would be equivalent to adding $4.10 to the price of a gallon of gasoline if amortized over the total volume of imports. For Persian Gulf imports, because of the enormous military costs associated with the region, the ‘‘hidden cost’’ was equal to adding $7.41 cents to the price of a gallon of gasoline. When the nominal cost is combined with this figure it yields a ‘‘true’’ cost of $9.53 per gallon, but that is just the start.

Because the price of crude oil is expected to remain the $60 range this year, expenditures for imports are expected to be at least $320 billion this year. That amounts to an increase of $70 billion in spending for foreign oil in just one year. That increase would raise the total import premium or ‘‘hidden cost’’ to $825.1 billion, or almost twice the President’s $419.3 billion defense budget request for fiscal year 2006. If all costs are amortized over the total volume of imports, that would be equivalent to adding $5.04 to the price of a gallon of gasoline. For Persian Gulf imports, the premium would be $8.35. This would bring the ‘‘real’’ price of a gallon of gasoline refined from Persian Gulf oil to $10.86. At these prices the ‘‘real’’ cost of filling up a family sedan is $217.20, and filling up a large SUV $325.80.

We face a two-fold problem. The first part entails assuring adequate fuel supplies for the 220 million privately owned vehicles on the road today. These vehicles have an average lifespan of 16.8 years and the average age of our vehicle fleet is 8.5 years. Therefore, we will require conventional fuels or their analogs for at least a decade, even if every new vehicle produced from this day forth runs on some alternative.

The second part is how to affect a transition to alternatives to conventional petroleum. This transition will take much longer than a decade—perhaps a generation or more—but the longer we delay beginning to make the change, the longer it will take to accomplish.

In the near term, say the next 5 to 10 years, we essentially have two options. First, to make the greatest possible use of our readily accessible conventional domestic resources, particularly the oil and natural gas that lay off our shores. We should also consider using some of our 1,430 trillion cubic feet of domestic gas reserves as a feedstock for motor fuels produced through the Fischer-Tropsch process. Indeed, we currently have 104 trillion cubic feet of so-called ‘‘stranded’’ natural gas in Alaska and a pipeline with some 1.1 million barrels per day of excess capacity. Stranded gas could be converted into clean burning motor fuel and transported in the existing pipeline to the lower 48 states.

 

RICHARD G. LUGAR, INDIANA.  The committee meets today to consider strategies for reducing dependence on oil. This dependence brings intolerable costs to American national security and economic well-being. If oil averages just $60 a barrel this year, the import costs to the United States economy will be approximately $320 billion. This revenue stream emboldens difficult oil-rich regimes and enables them to entrench corruption and authoritarianism, fund anti-Western demagogic appeals, and support terrorism.

As global oil demand increases and the world becomes more reliant on reserves concentrated in unstable regions, the likelihood of conflict over energy supplies will dramatically increase, and energy-rich countries will have more opportunity to use their energy exports as weapons against energy-poor nations.

High prices over the past 10 months have demonstrated the vulnerability of supply. A global oil market tightened by underinvestment in production and surging global demand has been aggravated by hurricanes, unrest in Nigeria, speculation about developments in Iran, weakened capacity in Venezuela, and terrorist activity in Iraq and elsewhere. In this environment, the price shock from a major supply disruption could cause a recession.

Today we will concentrate on how our Government can speed up the transition to alternative, sustainable energy sources. We are cognizant that despite past campaigns for energy independence and constant improvement in energy intensity per GDP, we are more dependent on oil imports today than we were when President Nixon authorized Project Independence in 1973.

The American public and elected officials are becoming more aware of the severe problems associated with energy dependence and are more willing to take aggressive action.

The new realism of energy geopolitics requires us to abandon the notion that simply finding more oil will solve oil-driven threats to our national security. More than three-quarters of the world’s oil reserves are controlled by foreign governments. With global oil demand projected to rise from 83 million barrels a day to 120 million barrels per day by 2030, the security threats related to oil dependence will continue to intensify unless we make dramatic changes in policy. Efforts to reduce oil consumption must focus on developing sustainable fuels and increasing efficiency. I am pleased that the first commercial-scale cellulosic ethanol plant in the United States is ready for construction and that Americans are beginning to demand more fuel-efficient vehicles.   I have introduced Senate bill 2435, the Energy Diplomacy and Security Act, to reorient our diplomatic activities to give greater priority to energy matters.

VINOD KHOSLA, PARTNER, KHOSLA VENTURES, MENLO PARK, CA.   Since the President’s State of the Union and rising prices at the pumps, there has been a lot of talk about our oil addiction. I come here to talk not about what must be done but rather how to get it done simply, and pragmatically, in a manner aligned with the major political interests that carry clout in this country. We can not only do the right thing, but also the politically correct thing, I come to you today with ambitious goals, but goals that are grounded in sound science, technology, and business. I am convinced that we can replace the majority of our petroleum used for cars and light trucks with ethanol within 25 years. This is not an alternative fuel—it can be a mainstream fuel. More importantly, with a few simple policy changes, we can be irreversibly traveling down this path in less than 7 years.

Ethanol is substantially cheaper to produce today than gasoline before all subsidies and taxes. For example, the cost to produce ethanol in Brazil is less than $0.75 per gallon, while a U.S.-based corn to ethanol plant’s production costs are roughly $1.00 per gallon. That equates, even with U.S. costs, to about $1.25 per ‘‘gasoline equivalent’’ gallon of ethanol. Gasoline on the other hand costs $1.60–$2.20 or more per gallon to produce, depending upon the cost of a barrel of oil. Why shouldn’t it sell for much less than gasoline at the pump, except for the oil interests distorting the price to ensure they don’t lose their lucrative profit opportunity or temporary supply/demand dynamics? As new technologies ramp up, ethanol can be cheaper than gasoline even if oil drops to $35–$40 per barrel—a level it is not expected to reach according to the EIA. In addition to lower cost, E85 reduces volatile organic compounds by 15%, carbon monoxide by 40%, NOX by 10%, and sulfate emissions by 80% when compared to gasoline according to an estimate from one environmental organization. With ethanol, we get a fuel that is cheaper for consumers and automakers, cleaner and greener, and it takes Mideast terrorism fueling dollars and moves them to rural America.

We capitalize on American technology to create more jobs and cheaper transportation costs for the American public.

My friends from the Midwest tell me ethanol is the talk of coffee shops and maybe the most important thing in rural America in 30 years. It may also be the most important thing for global peace and welfare, the climate crisis, and for consumers. Fortunately, this time around the environmentalists, the automakers, the agricultural interests, the security and energy independence proponents, and even the evangelicals are all aligned. Finally, a cause all interests can rally behind.

The oil interests keep propagating myths like insufficient land, poor energy balance, and high production costs to curb enthusiasm for ethanol. This is reminiscent of the tobacco companies funding studies to prove that smoking does not cause cancer. The NRDC, more concerned about land use than the oil interest, estimate a modest 114m acres of land needs, Argonne National Labs and UC Berkley, among many others, have discounted the energy balance claims. In my opinion, these are bogus if not ill-intentioned claims and I will address these falsehoods one by one. Crop Land: Yields of corn are increasing

Based on my forecasts, I can see my way to yields increasing more than 10X to between 3,000 to 5,000 gallons per acre compared to 400 gallons per acre today, demolishing all land use and energy balance arguments.

Based on my forecasts, including the considerable upside afforded by technology innovations, biomass-based ethanol can replace most of our gasoline needs in 20 years, using less than 60m acres of land.

Energy Balance: The only study that claims corn ethanol has an unfavorable energy balance is an outdated study performed by Professor Pimentel. Both USDA and DOE-affiliated researchers claim that Pimentel’s 2005 study overstates energy requirements. Professor Kammen at UC Berkley further states that corn ethanol results in more than a 90-percent reduction in petroleum use and a moderate 10– 30-percent reduction in greenhouse gases. The NRDC agrees, stating that (1) corn ethanol is providing important fossil fuel savings and greenhouse gas reductions; (2) cellulosic ethanol simply delivers, profoundly, more renewable energy than corn ethanol; and (3) very little petroleum is used in the production of ethanol . . . a shift from gasoline to ethanol will reduce our oil dependence. Remember tobacco claiming and funding studies, forever, to prove that smoking does not cause cancer?

I came to you today with ambitious goals. I hope that you, too, are convinced that we can replace the majority of our petroleum used for cars and light trucks with ethanol within 25 years.

 

JASON S. GRUMET, Executive director, National Commission on Energy Policy, Washington, DC.

I have the privilege to speak to you today on behalf of the National Commission on Energy Policy (NCEP), a diverse and bipartisan group of energy experts that first came together in 2002 with support from the Hewlett Foundation and several other leading philanthropies. In December 2004, the Commission released a report entitled ‘‘Ending the Energy Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenges.’’ The first chapter of that report was about oil security because our Commission believed then, and still does, that oil security is one of our Nation’s foremost economic, national security, and energy challenges.

This isn’t news to anyone, of course—least of all this committee. In fact, as national policy obsessions go, America’s oil dependence has been one of our most enduring. For more than 50 years, Congress and multiple administrations of either party have decried our reliance on imported oil and vowed to do something about it. Today, with oil prices topping $70 per barrel and gasoline prices at $3 per gallon, we are again enmeshed in an active debate over energy policy. The lack of real options to address near-term energy prices is a source of great frustration here in Congress and throughout the country.

Until, and unless, private markets reflect the full economic, security, and environmental costs of oil dependence—and until, and unless, consumers possess adequate information to make efficient choices—policies that rely solely on private market decisions will continue to fail.

Improving our energy security is a long-term challenge. This time, the problem of high prices and tight supplies will almost certainly get worse as growth in petroleum demand continues to outstrip the rate at which vehicle fuel economy improves and new sources of oil come on line. While biofuels hold great potential, near term gains will also be incremental when compared against our annual petroleum consumption. If history is a guide, public interest and support for long-term policies will wax and wane as the price of gasoline rises and falls.

RETHINKING ‘‘ENERGY INDEPENDENCE’’

Before delving into solutions, I would like to take on the somewhat heretical task of challenging the aspiration of ‘‘energy independence’’ with its attendant focus on reducing our Nation’s use of ‘‘foreign oil.’’ While emotionally compelling, these concepts are vestiges of a world that no longer exists. By failing to recognize the fundamentally global nature of the oil market, and the increasingly global nature of markets for natural gas, the call for energy independence has become an obstacle to effective policy design. There is one world market for oil. It is a fungible global commodity that has a single benchmark price. Wide disparities in the price of gasoline around the world are the product of national subsidies and taxes, but have nothing to do with how much oil different nation’s import or produce. Our economic vulnerability to oil price shocks is entirely a function of how much oil we use—the continent from which the oil was extracted has no bearing, whatsoever, on this equation.

As members of this committee know better than anyone else, some of the most profound consequences of America’s dependence on oil go well beyond the economic. It’s virtually impossible to put a dollar figure on all the costs of that dependence, but there is no question that our thirst for oil constrains our foreign policy, imposes burdens on our military, accounts for, approximately, one-third of the U.S. current account deficit which soared to $805 billion in 2005, swells the coffers of undemocratic and even actively hostile governments, and directly, or indirectly, provides some of the funding for terrorist organizations that mean us harm. These risks and vulnerabilities too, like those we face strictly in terms of our own economic well-being, will surely continue to grow if we don’t take action. Put simply, if current trends don’t change we face a global scramble for energy resources within this century that is sure to be economically and geopolitically damaging to all concerned.

Energy independence is simply unrealistic and has been ever since President Nixon first proposed to enshrine it as a national goal in the 1970s.

U.S. oil imports have been rising inexorably ever since. The United States, alone, currently accounts for fully one-quarter of world oil demand.

Our Nation holds less than 3% of the world’s proved oil reserves, while 61% of world reserves, by contrast, are located in the Middle East.

The United States will not have a serious policy to increase oil security until we achieve a significant increase in the fuel economy of our vehicles. A fundamental premise underlying the Commission’s oil security recommendations is the belief that we can neither drill nor conserve our way to energy security. We simply must address both the supply and demand sides of the equation if we are to have any hope of lasting success. As Congress and ordinary Americans search for solutions to the current costs of gasoline, it is painfully clear that there are no good near term options. We must accept this unfortunate reality and direct our attention to minimizing the harmful effects of the oil shocks that are likely to occur with increasing regularity and severity over the next 20 years.

Current projections indicate that oil production by the United States and other industrialized countries will decline by 6% over the next two decades, even as oil production in the former Soviet Union increases by nearly 50% and OPEC output increases 33%. This means that U.S. oil imports will continue to grow in the future, as they have for the last several decades, and that we like everyone else will increasingly need to rely on oil supplies that originate in what are now unstable and undemocratic regions of the world. Nor will our dependence on foreign sources of energy be limited to oil: Given declining domestic production of natural gas—another fuel that plays an extremely important role in the U.S. economy—it appears inevitable that we will increasingly need to rely on overseas sources for natural gas as well. The key, then, to greater energy security for the United States lies in recognizing—and better managing—our fundamental energy interdependence. Nearly all experts agree about the fundamental drivers behind today’s high oil prices and extreme market volatility. For some time now, rising global demand for petroleum—driven not only by growing U.S. demand, but in part by the very rapid modernization of countries like China and India—has been outpacing the discovery and development of new sources of supply. The result is that we now live in a world that requires approximately 85 million barrels of oil daily, but has only very little spare production capacity (as little as 2%, according to various estimates) and barely sufficient refining capacity. In this environment even small disruptions along the supply chain can cause serious repercussions.

The world is suffering from what can best be described as a ‘‘demand shock’’ as China, India, and much of the developing world modernize their economies and dramatically increase their use of motor vehicles.

In partnership with the organization, Securing America’s Energy Future (SAFE), NCEP has been exploring the potential consequences of today’s tight supply margins by examining the impacts of any number of possible disruptions in global oil supply. With help from industry and military experts, as well as from the Wall Street analysis firm, Sanford C. Bernstein and Co. LLC, we concluded that any number of truly unexceptional circumstances could cause global oil prices to literally skyrocket. As part of an oil crisis simulation called Oil ShockWave, we found that a mere 4% shortfall in daily world oil supplies could lead to a 177% increase in world prices. It wouldn’t take much, in other words, to send oil prices even higher— perhaps significantly higher—than they already are. With the U.S. transportation system over 97% reliant upon petroleum, the impacts of such an increase could be devastating.

As then-Chairman of the Federal Reserve, Alan Greenspan, observed in 2002, ‘‘All economic downturns in the United States since 1973 have been preceded by sharp increases in the price of oil.’’

Fuel economy requirements for passenger vehicles have been essentially unchanged since 1980. As a result, average fleet efficiency actually began to decline in recent years as large trucks and SUVs captured ever larger shares of the U.S. auto market.

On the demand side, the Commission recommends: 1. Significantly strengthening fuel economy standards for new passenger vehicles, while simultaneously reforming the existing CAFE program to reduce compliance costs and provide cost-certainty for manufacturers and consumers; 2. Creating incentives to accelerate the market penetration of highly efficient hybrid vehicles while also helping the domestic auto industry retool to meet growing demand for these vehicles; and 3. Exploiting opportunities to boost the efficiency of heavy duty vehicles and to improve the fuel-economy performance of the existing light duty vehicle fleet. Finally, to develop long-term alternatives to petroleum, the Commission recommends a sustained and vigorous effort to spur public and private sector investment in the development and early deployment of domestically produced transportation fuels derived from biomass and organic wastes. Of all available alternatives to petroleum fuels, the Commission believes that cellulosic ethanol holds the most potential for displacing a significant fraction of transportation oil demand within the next 20–30 years and should, therefore, be a focus of near term RD&D activities

Currently, the United States produces about 8.5 million barrels per day of oil (crude and products) and consumes about 21 million barrels per day of finished oil products.

The United States is thought to have about 25 billion barrels of proved, conventional oil reserves, the great majority in Alaska and off our Pacific coast with a smaller fraction off the Atlantic coast and the eastern Gulf of Mexico.

OIL DEMAND MEASURES.   While the Commission firmly believes that both supply and demand measures must be pursued as part of an effective strategy to enhance the Nation’s energy security, it is important to emphasize that when it comes to protecting the economy from oil price shocks, a barrel produced and a barrel conserved are not the same thing. The benefits of every added barrel of supply—whether produced domestically or abroad—accrue to oil consumers the world over, in the form of a marginal reduction in the market price. By contrast, the benefits that can be achieved through demand side measures and alternative fuel production—besides being much larger in absolute magnitude—are largely captured by those who implement them. The Commission, therefore, devoted significant attention to the potential for reducing our Nation’s oil demand, particularly in the transportation sector, which because it accounts for nearly 70% of current domestic consumption and is nearly solely dependent on petroleum fuels—is key to oil use in the broader U.S. economy.

Improving passenger vehicle fuel economy is by far the most significant and reliable oil demand reduction measure available to U.S. policymakers. As noted previously, CAFE standards played an important role in substantially reducing the oil intensity of the U.S. economy between the late 1970s and early 1990s. However, a longstanding political stalemate has blocked significant progress in fuel economy for over two decades. (See Fig. 5)

People often confuse our failure to increase domestic fuel economy with the view that technology options for improving vehicle efficiency have not advanced over the past two decades. Nothing could be farther from the truth. The efficiency of our automobiles increases annually. Estimates of this annual increase vary substantially from a low estimate of roughly 1.5% per year to a high estimate of over 5% per year.

However, with no requirement to direct these substantial efficiency gains toward achieving the public good of reduced oil dependence, vehicle manufacturers instead devoted recent technological advancements to simply maintaining fuel economy while dramatically increasing vehicle size and power. While vehicle fuel economy is now no higher than it was in 1981, vehicle weight has increased by 24% and horsepower has increased by over 100% over this same time period.

For the existing light duty vehicle fleet, simply ensuring that replacement tires have the same low-rolling resistance as original equipment tires can improve vehicle fuel economy by as much as 4.5% at very low cost to the vehicle owner.

Efficiency improvements are important not only because they produce demand reductions that will allow us to ‘‘buy time’’ to develop new alternatives to oil (a serious effort to diversify our fuel supply will likely take decades), but because they are essential to making many of those alternatives technologically and economically viable on a commercial scale. Biofuels and most other alternative fuels suffer from feedstock constraints, a lower energy density than gasoline, or both. Unless the vehicle fleet becomes more fuel efficient, efforts to promote a greater reliance on alternative fuels will likely falter due to inadequate supply or inadequate driving range.

DEVELOPING ALTERNATIVES TO OIL.  The United States burns nearly 140 billion gallons of gasoline each year and relies on petroleum-based fuels to supply nearly all of its transportation energy needs. To meaningfully improve our Nation’s energy security, alternative transportation fuels must be capable of being economically and reliably produced on a truly massive scale. The Commission identified four criteria that characterize a promising alternative fuel: (1) It can be produced from ample domestic feedstocks; (2) it has low net, full fuel-cycle carbon emissions; (3) it can work in existing vehicles and with existing infrastructure; and (4) it has the potential to become cost-competitive with petroleum fuels given sufficient time and resources dedicated to technology development. Among the variety of alternative fuel options potentially available for the light duty vehicle fleet, the Commission believes that ethanol produced from cellulosic biomass (i.e. fibrous or woody plant materials) should be the focus of near term federal research, development, and commercial deployment efforts. Let me briefly discuss the attributes of traditional corn-based ethanol and then turn to cellulosic ethanol.

For years, detractors of corn-based ethanol have asserted that the energy content of a gallon of ethanol is matched or even exceeded by the energy required to produce it. The Commission’s analysis disputes this conclusion, finding that corn-based ethanol provides nearly 20% more energy than it takes to produce.

The fundamental liability of corn-based ethanol is that there is simply not enough corn to begin to keep pace with expected growth in transportation energy demand, let alone to reduce current U.S. gasoline consumption in absolute terms. Put simply, it takes roughly 4% of our Nation’s corn supply to displace 1% of our gasoline supply. Even organizations devoted to ethanol advocacy agree that it will be difficult to produce more than 10–12 billion gallons of ethanol a year without imposing unacceptable demands on corn supply and significant upward pressure on livestock feed prices.

For cellulosic ethanol to succeed on a commercial scale important concerns about land requirements must be overcome and production costs must be reduced. The central challenge is producing enough feedstocks without disrupting current production of food and forest products. Some cellulosic ethanol can be produced from currently available waste products such as corn stalks, sugarcane bagasse, and wheat straw. Production volumes on the order of 50 billion gallons per year, however, will require improved high-yield energy crops like switchgrass, the integration of cellulosic ethanol production into existing farming activities, and efficiency improvements in the processes used to convert cellulosic materials into ethanol.

A Commission-sponsored analysis of the land required to produce enough cellulosic ethanol to fuel half of the current U.S. passenger vehicle fleet reveals the importance of the advancements noted above. Using status quo assumptions for crop yields, conversion efficiency, and vehicle fuel economy, Oak Ridge National Laboratory has estimated that it would take 180 million acres or roughly 40% of the land already in cultivation in the United States to fuel half the current vehicle fleet with cellulosic ethanol.

The Energy Policy Act of 2005 contains at least 10 major programs to promote ethanol derived from cellulosic feedstocks. These programs include explicit authorizations for more than $4.2 billion over the next decade to support critical R&D as well as ‘‘first mover’’ commercial facilities through a combination of grants, loan guarantees, and production incentives.

Research appears to indicate that when a small quantity of ethanol is blended into gasoline, the resulting mixture escapes more readily through the hoses and seals in the vehicle’s fuel system leading to more smog-forming emissions.

The Commission recognizes that Congress alone is responsible for appropriations, but can’t help but note that the high level of noncompetitive earmarks is undermining the strategic goals of our Nation’s bioenergy programs. For example, in 2004, of the $94 million in appropriations for DOE’s bioenergy programs, nearly $41 million was directed to earmarked projects. In 2005, earmarks accounted for nearly 50% of the program’s budget. Paradoxically, this high level of earmarks reflects the enthusiasm of many Members of Congress for promoting domestic alternatives to petroleum. However, an effective national effort that coordinates the efforts of Federal, State, and private institutions cannot be mounted under these circumstances.

CONCLUSION.  Sadly, there are no good options for delivering immediate relief from high prices at the gas pump. And while it’s understandable at times like this that people want to focus on price gouging, windfall profits, or restrictive environmental laws—as if our plight was somehow the result of a few greedy people or poorly written statutes—we must direct the vast majority of our attention to confronting the fundamental roots of our oil security predicament.

Prices may, of course, fall again in the months ahead. But there is almost no scenario in which the underlying causes of the current crisis simply resolve themselves without a concerted effort by the United States and other major oil-consuming nations to change course. The real tragedy would be if this ‘‘moment’’ simply passes as others have with no real progress toward a lasting solution. In short, there is no question that we will someday use less oil than we do now. The question is, rather, whether we arrive at that point on our own terms or on someone else’s. The Commission believes that the sacrifices we choose are infinitely preferable to those imposed on us by forces we cannot control.

JOSEPH R. BIDEN, JR., DELAWARE.  With gasoline at $3 a gallon, and with our most pressing foreign policy challenges centered in the oil-producing countries of the world, today’s hearing before the Foreign Relations Committee could not be more timely or more important. We heard a few weeks ago in this committee about the hidden costs of our dependence on foreign oil. The United States has just one third of the world’s oil reserves, and less than 5% of its population, but we consume fully one-third of the global oil output. Over 60% of the world’s oil reserves are held in the Middle East, and as one of our witnesses points out today, only 9% of world reserves are held in countries we would call ‘‘free.’’ We are dependent on oil, and that makes us dependent on countries with whom we will continue to have, at best, many differences and, at worst, open hostility. What Michael Mandelbaum has called ‘‘the axis of oil’’—an axis that stretches from Russia to Iran to Venezuela to Saudi Arabia—will have as great an impact on our national security as the so-called ‘‘axis of evil.’’

That dependence means we pay a huge price militarily for access to a resource that we cannot do without. One estimate suggests we pay as much as $825 billion a year in security expenditures to project our influence and secure access to oil.

Some part of every dollar we pay for imported oil finds its way into the hands of our sworn enemies. As some observers have put it, the war on terror is the first war in which we are paying for both sides in the conflict. Disruption to our economy from interruptions in supply can be huge, and will grow as our dependence grows. As Alan Greenspan has warned us, all economic downturns since the 1970s have been preceded by spikes in the price of oil. We pay a price environmentally for our dependence on oil, most profoundly in dealing with the repercussions of climate change, driven by our use of fossil fuels. There can no longer be any doubt that our dependence on oil is a critical problem, one that must be addressed. The sheer size of this problem is such that there will be no quick fix. Oil represents about 40% of our energy consumption and we import about 60% of the oil we use.   That statistic will not be transformed overnight. But there are other statistics that will not change, as well. China has accounted for fully 40% of the recent increase in global oil demand. It will put another 120 million vehicles on the road over the next 5 years. Along with India, and a reindustrializing Eastern Europe, that growth in global demand is not going to be reversed. The fit between global supply and demand today is extremely tight. Billions of dollars of new investment may keep pace with demand, but will do little to ease the price at the pump. And new supply, from conventional or unconventional sources of oil, will only hasten the process of climate change, and will simply delay our transition to the alternatives than can address our addiction to oil.

What are our alternatives to oil? In the short term, ethanol from corn could be a first step away from our oil addiction, by providing a liquid fuel that is compatible with existing internal combustion engines that power our cars, trucks, and buses. We will hear today about the costs and benefits of taking such a step, and the steps that must follow toward sugar or cellulosic ethanol. Ethanol will be just part of a broader energy policy that will reduce our dependence on oil, and will reduce the leverage that the oil-producing nations have over our foreign policy and our national security. If it was not clear before, it is now. Domestic energy policy is at the center of our foreign policy.

Mr. Khosla, you mentioned some intriguing possibilities with regard to the acreage issue. As you pointed out, sometimes critics of alternative plans point out that we are limited in this country by the number of acres we could devote. Usually the argument is made, first of all, with regard to corn ethanol, but then as you observe, maybe more generally with regard to switchgrass or biofuels materials that might come in the cellulosic ethanol in addition. In the figures that you gave—and sort of retrace this for us, if you will—you talked about 400 to 500 gallons of ethanol per acre coming from, as I understand, current practices. Is that in the corn field or the cellulosic field? What are the 400 or 500 gallons at this point?

Mr. KHOSLA. Sir, roughly 140-some bushels per acre times 2.7 or 2.8 gallons of ethanol per bushel would result in about 400 gallons per acre, roughly.

The CHAIRMAN. So that is the corn yield, the 140 bushels.

Mr. KHOSLA. Yes.

The CHAIRMAN. Now, how do we get from there to some multiple? And, ultimately, in the years beyond, you were even talking about 3,000 to 5,000, which is quite a jump.

Mr. KHOSLA. I expect that we can get to yields of corn, according to the National Corn Growers Association, approaching 2,000 bushels per acre.

The CHAIRMAN. 2,000 bushels per acre.

Mr. KHOSLA. By 2015.  I believe cellulosic technologies have the most impact when it comes to achieving yields of 3,000 gallons per acre.

The CHAIRMAN. Now, let me just run back through this because 2,000 bushels per acre in a timeframe of 2015——

Mr. KHOSLA. I’m sorry; 200 bushels per acre.

The CHAIRMAN. From my father’s experience on the same farm, 60 years ago, we were getting 40 or 50 and we are now getting 140 or 150 in our generation.  Even if we get to 200 bushels to the acre times 2.7, that gets you to 540 or so, which is not 3,000. So when you get to the 3,000 mark, there has got to be something else, and this is more in the cellulosic variety, I gather.

Mr. KHOSLA. A basic assumption I make is we can now get about 6 tons per acre of biomass yields. The best plant biologists in the country I have talked to completely support the notion that in 25 years, that yield can go up to 27.5 tons per acre. If we can do 27.5 tons per acre and 118 gallons per ton of biomass, then the numbers are what we get in this chart on page 58, roughly about 3,000 gallons per acre.

The CHAIRMAN. The skeptics would say, after all, there is not enough land left in America to do all these sorts of things. At best, this is still a niche idea in which you do a little bit of it, get maybe, single digits or 20% of our needs, but that is about where it ends. So, therefore, all this talk about independence—in my opening statement, I am talking about some grim facts, and that is, even if there is a lot of oil left on earth and if, in fact, there are a lot of reserves that are still not exploited, 77% plus are held by other governments. And these are not benign people. Somebody that shuts off the tap to Ukraine, for example, accomplishes something that you do not have to send aircraft over or tanks or what have you to do. You can obliterate a country this way. It is not advisable people do this very often. And that is one reason that we are talking about this because we have said as these things begin to close in, the knives get sharper and the elbows, likewise. People in a strategic position decide to use this aggressively against others and maybe against us. People who do not understand the existential problem here, not just for Ukraine, but, ultimately, for the United States, really need to wise up.

Both of you have mentioned, in one form or another, oil sands, Canada, Alberta. Now, the Energy Minister was in last week, and he said the problem there is that we cannot get people to do the work. Literally this is very tough work. It is very cold. It is very messy. It is very dirty. They cannot get enough Canadians, Americans, Mexicans, anybody in the hemisphere. The Mexican Energy Minister was there. They cannot furnish enough people from Mexico to make that work. So, theoretically, you have oil sands up there. We have, unfortunately, some human problems. How do you get people to work the oil sands? Now, eventually, we may get through that.

We still have people in denial that climate change or global warming is a real problem. This is almost a theological debate even with major newspapers and publications in this country. So although you are in a group of people that believe this is for real and we have to deal with it, as politicians we find a lot of people who do not believe in this, who think essentially it is sort of an elite group of people who meet with the Foreign Relations Committee from time to time and talk about things that are vaguely subversive to normal American practice.

Senator BIDEN. To the oil industry. They think it is subversive.

The CHAIRMAN. Now, finally, while I am spouting off about all of my prejudices, which you have listened to, on the CAFE standards, we have got a situation here. We debate this issue all the time. In the House committee last week, by a vote of 28 to 26, they, at least, had a nominal CAFE standard. Democrats on the committee, who voted en bloc against that—and they were the 26— said, well, this does not amount to anything. What you really need is a 33-miles-per-gallon standard. That was offered by one gentleman and that lost 37 to 16, as I recall. I do not know where they all stand now.

Senator BIDEN.  Mr. Grumet, you said that the National Highway Transportation Safety Administration, although it is well intended—the discussion of CAFE standards may not produce the effect we desire. What should we be doing here in Congress?

Mr. GRUMET. I think this really does come down to a question of institutional capacity. The people at NHTSA are well-intended, hard-working people, and when they imagine how to make the optimum changes in CAFE, what they try to do is figure out what is the total social value of saving a gallon of gasoline and what is the cost of new technologies to achieve that, and they try like any good economists to make the lines cross. So what NHTSA just did was they reformed the structure of CAFE in ways that I think bring greater economic efficiency to the program. It gets you out of the idea that all cars have to meet the same standards. So it is kind of a continuum of weight-based results. And all of that is perfectly fine and good. But the key input was the number they put into the model to say what is the total social value of saving a gallon of gasoline over the next 10 years, and that was $1.70. They used, by law, the EIA projections of the cost of a gallon of gasoline, which are presumed to flatten out by around $2, and they take the taxes off that. So we get $1.60 of real value of a gallon of gasoline. And then when they looked through 50 different ways that gasoline and oil also affect our economy, the sum total of the benefits of reducing a gallon, they come up with is about 6 cents. And they looked hard within the abilities of a guy with green eyeshades and a computer. They looked actually at the value of spending less time standing at a gasoline station squeezing fuel into your tank. They looked at what they perceived to be the value of reducing air pollution. They looked at what they perceived to be the value of reducing the vulnerability to price shocks. They looked at the value of military, and I will read to you the quote from the regulatory impact statement. ‘‘The U.S. military presence in world regions that represent vital sources of oil imports also serves a range of security and foreign policy objectives that is considerably broader than simply protecting oil supplies. As a consequence, no savings in Government outlays for maintaining the Strategic Petroleum Reserve or a U.S. military presence are included among the benefits of the light duty truck CAFE standards.’’

Someone has to help NHTSA think about tensions with China, foreign policy prerogative, military costs, and things that are simply beyond their tools and competence.

Mr. KHOSLA. we are very, very close to a tipping point of permanently getting away from petroleum. I believe we have the capacity in this country to meet all of our needs within a relatively short period of time.

If you can imagine going beyond America, because it is transformative of rural America, it will repeat that phenomena all over the world. If one was to address the question of poverty, another question I am personally very interested in—and microfinance is my other area of endeavors—and you draw a poverty belt, it is all around the equator. The poverty belt runs 20 degrees north and 20 degrees south of the equator. That is the part of the world that will be rejuvenated completely by a switch to biomass fuels. We will address the poverty question much more effectively with this transformation and have global impact. Also, if one might imagine a map of the world, one can see America meeting its needs and Canada’s needs, sort of North America meeting its needs; South America supplying South America and Europe; Australia with lots of land supplying China; India being relatively self-sufficient; and Africa sort of being a big buffer zone for biomass. So one can almost paint a global picture of supply and demand and the regional and local balances that I am happy to elaborate in more detail, if you would like. That to me is the most exciting part of this transformation beyond just meeting our energy independence goals. It changes the planet beyond changing the face of rural America, and that is exciting. That is very exciting. And it is very doable. It is not esoteric.

RUSSELL D. FEINGOLD, WISCONSIN.  I appreciate the Chair’s unfailing commitment to the issue of energy security. He has been a constant voice, using this committee’s area of jurisdiction, warning us about the implications of our energy choices and today’s hearing continues these efforts. As we all know, our current over-dependence on oil poses grave risks for our country—for our national security, for our economy, and for our environment. While I remain saddened that we didn’t use last year’s energy bill to really push the envelope, I am optimistic that we will soon get it right and provide an energy vision to bring us into the 21st century.

NORM COLEMAN, MINNESOTA. I think this is one of the most important issues facing this country today. There’s no question about it. It is a national security issue. It is an economic security issue. It is about our present. It is about our future. So I am glad that we are thinking outside the barrel, and I think this is an opportunity

 

RICHARD G. LUGAR, INDIANA.   The Foreign Relations Committee meets today to consider the externality costs of U.S. dependence on fossil fuels. The gasoline price spikes following the Katrina and Rita hurricanes underscored for Americans the tenuousness of short-term energy supplies. Since these events, there is a broader understanding that gasoline and home heating prices are volatile and can rapidly spike to economically damaging levels due to natural disasters, terrorist attacks, or other world events. But, as yet, there is not a full appreciation of the hidden costs of oil dependence to our economy, our national security, our environment, and our broader international goals. Today, with the help of experts who have thought a great deal about these issues, we will attempt to more clearly define some of these costs. We are cognizant that this is a difficult and imprecise exercise. We are also aware that most, if not all, energy alternatives have some externality costs. But we are starting from the presumption that if we blithely ignore our dependence on foreign oil, we are inviting an economic and national security disaster. With less than 5% of the world’s population, the United States consumes 25% of its oil. If oil prices remain around $60 a barrel through 2006, we will spend approximately $320 billion on oil imports this year. Most of the world’s oil is concentrated in places that are either hostile to American interests or vulnerable to political upheaval and terrorism. More than three-quarters of the world’s oil reserves are controlled by national oil companies. And within 25 years, the world will need 50% more energy than it does now. These basic facts demand a major reorientation in U.S. policy aimed at reducing U.S. dependence on fossil fuels. Our goals must be to mitigate the short-term costs of our dependence on oil, while pursuing energy alternatives that would reduce the international leverage of petro-superpowers, improve environmental quality, cushion potential oil price shocks, stimulate new high-tech energy industries, and ground the American economy on energy sources that will neither run out nor be cut off by a foreign supplier.

There are at least six basic threats associated with our dependence on fossil fuels. First, oil supplies are vulnerable to natural disasters, wars, and terrorist attacks that can produce price shocks and threats to national economies. This threat results in price instability and forces us to spend billions of dollars defending critical fossil fuel infrastructure and choke points. Second, over time, finite fossil fuel reserves will be stressed by the rising demand caused by explosive economic growth in China, India, and many other nations. This is creating unprecedented competition for oil and natural gas supplies that drives up prices and widens our trade deficit. Maintaining fossil fuel supplies will require trillions in new investment—much of it in unpredictable countries that are not governed by democracy and market forces. Third, energy rich nations are using oil and natural gas supplies as a weapon against energy poor nations. This threatens the international economy and increases the risk of regional instability and military conflict. Fourth, even when energy is not used overtly as a weapon, energy imbalances are allowing oil-rich regimes to avoid democratic reforms and insulate themselves from international pressure and the aspirations of their own people. In many oil rich nations, oil wealth has done little for the people, while ensuring less reform, less democracy, fewer free market activities, and more enrichment of elites. It also means that the United States and other nations are transferring billions of dollars each year to some of the least accountable regimes in the world. Some of these governments are using this money to invest abroad in terrorism, instability, or demagogic appeals to anti-Western populism. Fifth, reliance on fossil fuels contributes to environmental problems, including climate change. In the long run, this could bring drought, famine, disease, and mass migration, all of which could lead to conflict and instability. Sixth, our efforts to facilitate international development are often undercut by the high costs of energy. Developing countries are more dependent on imported oil, their industries are more energy intensive, and they use energy less efficiently. Without a diversification of energy supplies that emphasizes environmentally friendly options that are abundant in most developing countries, the national incomes of energy poor nations will remain depressed, with negative consequences for stability, development, disease eradication, and terrorism.

Each of these threats comes with short- and long-term costs. As a result, the price of oil dependence for the United States is far greater than the price consumers pay at the pump. Some costs, particularly those affecting the environment and public health, are attributable to oil no matter its source. Others, such as the costs of military resources dedicated to preserving oil supplies, stem from our dependence on oil imports. But each dollar we spend on securing oil fields, borrowing money to pay for oil imports, or cleaning up an oil spill is an opportunity missed to invest in a sustainable energy future. Certain types of costs are extremely difficult to quantify. We understand that many national security risks are heightened by our oil dependence. But how, for example, would we assign a dollar figure to Iran’s use of its energy exports to weaken international resolve to stop its nuclear weapons program?

HILLARD HUNTINGTON EXECUTIVE DIRECTOR, ENERGY MODELING FORUM, STANFORD UNIVERSITY, STANFORD, CA

A number of knowledgeable experts, however, are concerned about the very real possibility of much more damaging shocks in the future. A group assembled by Stanford’s EMF thought that the odds of, at least, one very damaging shock over the next 10 years were higher than those of an oil market with some volatility but without such a shock. Although another major oil disruption is not a certainty, its likelihood is significantly high enough to be worrisome. Your odds of drawing a club, diamond, or heart from a shuffled deck of playing cards are three out of four. In the EMF study, the participants found that the odds of a foreign oil disruption happening over the next 10 years are slightly higher at 80%. Disruption events included surprise geopolitical, military, or terrorist turmoil that would remove at least 2 million barrels per day—an amount representing about 2.1% of expected global oil production. Foreign disruptions of this magnitude would have more serious effects on oil prices and the economy than we have seen with the Katrina and Rita hurricanes. Oil prices, however, would rise more and for longer than a few months or a heating season.

The approach identified four major supply regions where disruptions are most likely. These regions account for approximately similar shares of total world oil production. Collectively, they account for about 60% of total world oil production. The study lumped Algeria, Angola, Libya, Mexico, Nigeria, and Venezuela as the first region, called ‘‘West of Suez.’’ Saudi Arabia was the second region, and other Persian Gulf states—Iran, Iraq, Kuwait, Qatar, UAE, and Oman— were the third. Russia and the Caspian states comprised the fourth region.

The riskiest areas were the Persian Gulf countries outside of Saudi Arabia and several countries along the Atlantic Basin, such as Nigeria and Venezuela. The least risky area was Russia and the Caspian states. Although the participants found the possibility of disruptions was lower in Saudi Arabia than in several other vulnerable regions, disruptions there would tend to have larger effects.

In the second study on the economic consequences of a major disruption, we sought to understand how easily the economy could absorb such a shock. Figure 1 shows that oil price shocks preceded 9 of the last 10 recessions in the United States.

This finding was first advanced by Professor James Hamilton at University of California at San Diego and has been confirmed by numerous other researchers.

Some people think that oil shocks may not be a problem because the Federal Reserve Board could intervene and lessen the impact. I have a great deal of faith in the Federal Reserve Board. They have done a marvelous job in controlling inflation, which places the U.S. economy in a better position for offsetting oil disruptions than in previous decades. I am not yet convinced that they can compensate the economy for a large devastating disruption. They would have to make some important decisions very quickly at a time when fears were running rampant. They may also find it difficult to stimulate the economy because nominal interest rates are already very low, not only here but also abroad. For this reason, I think that the United States should seriously consider other types of insurance policies that would allow the Federal Reserve Board more leeway and flexibility in controlling our inflation rates.

As a general rule, strategies that reduce our dependence on oil consumption are more effective than policies that reduce our imports. One should view the world oil market as one giant pool rather than as a series of disconnected puddles. When events happen anywhere in the market, they will raise prices not only there but also everywhere that connect to that large pool. Since reducing our imports with our own production does not sever our link to that giant pool, disruptions will cause prices to rise for all production, including that originating in the United States. More domestic supplies do not protect us from these price shocks.

As a result of the 1970 oil price shocks, we shifted away from oil in many sectors in the early 1980s, but that trend has slowed considerably since then. Moreover, transportation remains strongly tied to oil use. The dependence on oil in transportation not only affects households directly through higher gasoline costs but it also raises the costs of transporting goods around the country.

In summary, the nation is vulnerable to another major disruption not because the economy imports oil but primarily because it uses a lot of oil, primarily for gasoline and jet fuel.

Oil-importing governments have committed significant political and military resources to the Middle East over a number of decades in order to provide regional stability that is critical to world oil supplies. Excessive exposure to oil vulnerability risks in this country increases these costs or reduces the capacity to pursue foreign policy objectives that are for mitigating nuclear proliferation, terrorism, and other risks that reduce global security.

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China consumes mind-boggling amounts of raw materials

September 10, 2015. China Consumes Mind-Boggling Amounts of Raw Materials. Visual Capitalist.China consumption raw materials

 

 

 

 

 

Over the last 20 years, the world economy has relied on the Chinese economic growth engine more than it would like to admit. The 1.4 billion people living in the world’s most populous country account for 13% of global GDP, which is significant no matter how it is interpreted. However, in the commodity sector, China has another magnitude of importance. The fact is that China consumes mind-bending amounts of materials, energy, and food. That’s why the prospect of slowing Chinese growth is likely to continue as a source of nightmares for investors focused on the commodity sector.

The country consumes a big proportion of the world’s materials used in infrastructure. It consumes 54% of aluminum, 48% of copper, 50% of nickel, 45% of all steel, and 60% of concrete.

China has consumed more concrete in the last three years than the United States did in all of the 20th century.

China is also prolific in accumulating precious metals – the country buys or mines 23% of gold and 15% of the world’s silver supply.

With many mouths to feed, China also needs large amounts of food. About 30% of rice, 22% of corn, and 17% of wheat gets eaten by the Chinese.

Lastly, the country is no hack in terms of burning fuel either. Notably, China uses 49% of coal for power generation as well as metallurgical processes in making steel. It also uses 13% of the world’s uranium and 12% of all oil.

These facts really hit home to show how important China is to the global consumption of raw materials. If China is unable to navigate its tricky transition to a consumer-driven economy and has a “hard landing”, it will be unlikely to see any growth in commodity prices triggered from the demand side. That said, supply is equally as important and it tells a different story: with companies like Glencore cutting copper production by 400,000 tons to better service its massive debt, the floor for commodities could be in.

 

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Sewage Treatment

Before sewage treatment, cities were hell-holes of horribly foul smells from rotting human waste, industrial effluent, and garbage.  Few people lived beyond 50 because of the many waterborne diseases.  In fact, sewage and water treatment systems are the main reason lifespans nearly doubled (Garrett).  Here are just a few of the diseases possible from drinking untreated water: Adenovirus infection, Amebiasis, Campylobacteriosis, Cryptosporidiosis, Cholera, E. Coli 0157:H7, Giardiasis, Hepatitis A, Legioellosis, Salmonellosis, Vibrio infection, Viral gastroenteritis, free living amoebae (ADHS).  For the full list of waterborne diseases, see post Water-borne diseases will increase as energy declines.

Pikaar, Ilje, Keshab R. Sharma, Shihu Hu, Wolfgang Gernjak, Jürg Keller, Zhiguo Yuan. August 15, 2014. Reducing sewer corrosion through integrated urban water management. Science  Vol. 345: 812-814  

Abstract: Sewer systems are among the most critical infrastructure assets for modern urban societies and provide essential human health protection. Sulfide-induced concrete sewer corrosion costs billions of dollars annually and has been identified as a main cause of global sewer deterioration. We performed a 2-year sampling campaign in South East Queensland (Australia), an extensive industry survey across Australia, and a comprehensive model-based scenario analysis of the various sources of sulfide. Aluminum sulfate addition during drinking water production contributes substantially to the sulfate load in sewage and indirectly serves as the primary source of sulfide. This unintended consequence of urban water management structures could be avoided by switching to sulfate-free coagulants, with no or only marginal additional expenses compared with the large potential savings in sewer corrosion costs.

Sewer systems are corroding at an alarming rate, costing governments billions of dollars to replace. Differences among water treatment systems make it difficult to track down the source of corrosive sulfide responsible for this damage. Pikaar et al. performed an extensive industry survey and sampling campaign across Australia (see the Perspective by Rauch and Kleidorfer). Aluminum sulfate added as a coagulant during drinking water treatment was the primary culprit in corroding sewer systems. Modifying this common treatment strategy to include sulfate-free coagulants could dramatically reduce sewer corrosion across the globe.

Urban sewer networks collect and transport domestic and industrial wastewaters through underground pipelines to wastewater treatment plants for pollutant removal before environmental discharge. They protect our urban society against sewage-borne diseases, unhygienic conditions, and noxious odors and so allow us to live in ever larger and more densely populated cities. Today’s underground sewer infrastructure is the result of an enormous investment over the last 100+ years with, for example, an estimated asset value of one trillion dollars in the USA (Brongers). This equates to ~7% of its current gross domestic product. However, these assets are under serious threat with an estimated annual asset loss of around $14 billion in the United States alone. Sulfide-induced concrete corrosion is recognized as a main cause of sewer deterioration in most cases.

Many water utilities will need to upgrade both their water supply and wastewater service infrastructure over the next 10 to 15 years, which will require enormous capital investments.

References

ADHS. Waterborne diseases. Arizona Department of Health Services.

Brongers, M. P. H., P. Y. Virmani, J. H. Payer. 2002. “Drinking water and sewer systems in corrosion costs and preventative strategies in the United States”.  Federal Highway Administration Publication FHWA-RD-01-156, U.S. Department of Transportation, Washington, DC.

Garrett, L. 2001. Betrayal of Trust: The Collapse of Global Public Health. Hatchette Books.

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A Strong Case for the Anthropocene: no other species has ever consumed so much of earth’s resources so quickly

Williams, M., et al. March 14, 2016. The Anthropocene: a conspicuous stratigraphical signal of anthropogenic changes in production and consumption across the biosphere. Earth’s Future.

Humans are producing and consuming resources at a geologically unprecedented rate – a rate that needs to be maintained to continue the high level and complexity of the current [fossil-fuel based] civilization.  This high consumption has formed a ‘striking new pattern’ in the planet’s global energy flow.

Humans now consume between 25 and 38% of net primary production of the planet. Human modification and appropriation of NPP, and the production of energy over and above NPP, has been developing over thousands of years, but accelerated markedly from the mid-20th century onward (Figure 1).

Produced energy and the pattern of human population growth from 1750. Utilization of these energy sources, together with the energy used by humans from net primary production, is now approaching the entire energy available to the global ecosystem before human intervention [Barnosky, [1]]. Key to colours: dark blue = coal; dark brown = oil; green = natural gas; purple = nuclear; light blue = hydro; orange brown = biomass (e.g. plants, trees). Data source from http://www.theoildrum.com/node/8936

Produced energy and the pattern of human population growth from 1750. Utilization of these energy sources, together with the energy used by humans from net primary production, is now approaching the entire energy available to the global ecosystem before human intervention [Barnosky, [1]]. Key to colours: dark blue = coal; dark brown = oil; green = natural gas; purple = nuclear; light blue = hydro; orange brown = biomass (e.g. plants, trees). Data source from http://www.theoildrum.com/node/8936

Figure 1. Produced energy and the pattern of human population growth from 1750.

Professor Zalasiewicz at the University of Lecister said the last times such huge effects were seen happened 2.5 billion years ago when photosynthesis appeared, and again half a billion years ago when the food web grew more complex.  Although the 5 major extinction events were also huge, “ even measured against these events, human-driven changes to production and consumption are distinctly new.”

Co-author Dr Carys Bennett added: “It is without precedent to have a single species appropriating something like one quarter of the net primary biological production of the planet and to become effectively the top predator both on land and at sea.”

Some of the massive effects humans are having on the planet include mining phosphorus and fixing nitrogen to make fertilizer, burning hundreds of millions of years of fossil fuels, and directing this increased productivity that is well beyond natural levels towards animals re-engineered for our consumption.

According to Professor Zalasiewicz: “This refashioning of the relationship between Earth’s production and consumption is leaving signals in strata now forming, and this helps characterize the Anthropocene as a geological time unit.  It also has wider and more fundamental importance in signaling a new biological stage in this planet’s evolution.”

Dr Colin Waters of the British Geological Survey said: “Modern human society is structured around economic production and consumption and our recent perturbation of the balance between the two, notably since the mid-20th century, will leave a signal that will provide a lasting legacy of our existence on this planet.”

Also see ScienceDaily.com’s March 23, 2016 Human impact forms ‘striking new pattern’ in Earth’s global energy flow.

Some excerpts from the paper

The human impact on production and consumption in the biosphere is recognizably different from all previous patterns. Humans appropriate a major component of NPP that is augmented by their use of fossil fuels: the combined energy use now approaches that available to the entire terrestrial biosphere prior to human intervention. In addition, humans are poor at recycling compared to the unmodified biosphere, a clear example being the geologically unprecedented rapid increase of carbon in the atmosphere from the consumption of fossil fuels, and concomitant accumulations of plastics—made from hydrocarbons—at the surface.

The influence of humans on mammal populations during the late Pleistocene represents a global, though diachronous, signal of growing human impact. This potentially had an ecosystem engineering effect, as the climax forests of several areas throughout North America may be the result of the removal of megafauna (mammoths and mastodons) in the late Pleistocene, animals that were effective in forest clearance.

However, a key transition in the human remodeling of production and consumption was the origin of farming, moving primary productivity to annual crop plants and shifting primary consumption to domesticated animals. These innovations, which mark the end of the Epi-Paleolithic and the beginning of the Neolithic culture, include the domestication of cattle (pigs, cows, goats, sheep etc.) and development of agriculture from about 10,000 years ago. Once adopted, agriculture sustained a greater population (and standing biomass) of people, and provided the environment in which human specialist activities unrelated to food production could evolve.

 

The eventual transfer of labor from agriculture to non-agricultural activities is the central component of industrialization, and has led to even greater appropriation of primary production by humans, and to the use of fossil fuels to augment energy supplies to the global ecosystem, with the concomitant rise of humans and their domesticated animals as the principal component of standing terrestrial large-animal biomass. From the 17th- to mid-20th century technological advances in farming, in their initial stages focused on England, the Low Countries and northern Italy, and then spreading globally, helped facilitate increasing appropriation of primary production. These included: improvements in drainage and restoration systems; the development of the Dutch plough in the early 17th century; the mechanization of farming in the early 18th century; developments in breeding and genetic manipulation, scientifically explained by Gregor Mendel in the mid-19th century; and the use of fertilizers, with the discovery that ammonia could be synthesized by a chemical reaction from nitrogen, first demonstrated by Fritz Haber in 1909, representing perhaps the most significant step. This paved the way for overcoming a major natural limiting force on agricultural production—the rate at which plants fix atmospheric nitrogen into soils—in the early 20th century by the German scientists Fritz Haber and Carl Bosch, who used Haber’s earlier discovery to develop the Haber-Bosch process. Their process took atmospheric nitrogen to make nitrogen fertilizers [some 90 million tons of nitrogen-based fertilizer now being produced each year. Through enhancing food production, this single innovation is estimated to sustain some 40% of global human population today. The process is energy-intensive, and is directly supported by the consumption of fossil fuels (fossil NPP). The widespread use of fossil energy to make processing of land (e.g., ploughing) quicker and more efficient, to support a greater number of humans and their domesticated animals, to enable rapid national/international transfer of produce, and to enable more efficient harvesting of the sea and sea floor has further amplified the impact of humans on both production and consumption in the biosphere.

During the 20th century (between 1910 and 2005) the Human Appropriation of Net Primary Productivity doubled from 13 to 25% of the NPP of potential vegetation. These changes involved a doubling of reactive nitrogen and phosphorus in the environment, and the use of vast amounts of fossil energy focused on agricultural production. In 2014 humans extracted 225 million tons of fossil phosphates, and this is projected to rise to 258 million tons by 2018. Phosphates are a limited resource, but nevertheless annual human addition to the phosphorus cycle exceeds the amount of available phosphorus from natural recycling. Future projections, dependent on land-use, suggest between 27 and 44% of NPP might be appropriated by humans by 2050. While it is likely a geologically unique situation for a single species to co-opt or consume such a large percentage of NPP, perhaps more significant from a biosphere perspective is the technology and landscape modification that humans have used to achieve this. This leads to a complex relationship whereby the ultimate biophysical limit to the amount of NPP that humans might appropriate is dependent on the interplay of many parameters in the landscape, a relationship that needs to evolve rapidly to provide stability between production and consumption in the Anthropocene biosphere.

Viewed from another perspective, the large-scale integration of humans and technology has led to a new terrestrial “sphere,” the technosphere, a novel Earth system of global extent, which is characterized by a total mass approaching that of the biosphere, significant rate of energy dissipation (17 TW), and high average density of infrastructure links such as roads [circa 0.4 km of roadway per km2 of land area, CIA, 2015] and of links between mobile communication devices [circa 50 such devices per km2 of land area, PR Newswire, 2014] that help connect together most humans and most in-use technological artifacts. An emergent system, the technosphere comprises the world’s humans, cultures, and technological components and systems, and maintains itself quasi-autonomously via feedback loops that deliver goods and services desired by humans (e.g., entertainment), or essential for their survival (e.g., food and water), in return for human participation in its continued function. There are no analogs for the technosphere in the geological history of life on Earth. Therefore, its myriad ramifications are truly unprecedented.

 

Human Impact Measured Against Geological Events

Throughout geological history the coupling between the production of biomass and the consumption of that biomass in the biosphere has typically maintained stability, with periods such as the Ordovician and Cretaceous showing patterns of fauna and flora that indicate persistent stable ecosystems over long time frames. Intervals where this stability may have been temporarily disrupted include the mass extinction events of the Neoproterozoic Era and Phanerozoic Eon [there being six of these following the definition of Benton, 2012, of which five were within the Phanerozoic Eon], with many small-scale extinctions operating at intervals of perhaps hundreds of thousands of year timescales or less. More fundamental changes to the functioning of the biosphere are associated with: its expansion to cover much of the globe (with increasing primary production) during the evolution of photosynthesis at circa 2.7 billion years ago [Nisbet and Fowler, 2014; see Figure 2] linked to the development of an oxygenated atmosphere during the Great Oxygenation Event beginning circa 2.5 billion years ago [Pufahl and Hiatt, 2012]; the construction of complex trophic structures between primary producers (e.g., marine phytoplankton), primary consumers (e.g., herbivorous zooplankton), and secondary consumers (e.g., tertiary and apex arthropod predators) during the Cambrian Period [Butterfield, 2011; Perrier et al., 2015], which led to animals typically forming the largest standing biomass in marine ecosystems; and the construction of complex terrestrial ecosystems with plants forming the largest standing biomass, with an increasing impact on the carbon-cycle and climate during the mid-Paleozoic [Kansou et al., 2013] and later. Measured against these changing geological-scale patterns, is the human impact on the biosphere significant?

Certain characteristics of current production and consumption in the biosphere appear entirely unique from a geological perspective, not least in being driven by a single species (Homo sapiens) within a time frame that is dramatically accelerated (decades versus millions of years) relative to past events. These changes have been characterized as defining a new biosphere state [Behrensmeyer et al., 1992; Williams et al., 2015]. They include the widespread transportation of animals and plants around the planet (the “neobiota”), the human-directed evolution of biology and ecosystems, the extraction of energy and material resources from deep in the Earth’s crust, and the huge appropriation of production by humans, which will leave a fossil record in, for example, both the physical and chemical signatures of biomineralized materials [bones, shells, reefs, etc., see Kidwell, 2015].

A profound example of these changing patterns is the Green Revolution of the mid-20th century. This translation of technologies that originated from technological breakthroughs in developed countries, which were transported and adapted to the developing world, included the transfer of technology for fertilizers (principally nitrogen-, phosphate- and potassium-based), new crop varieties, insecticides, pesticides, herbicides and irrigation. The Green Revolution spread across the world from the 1950s onward, dovetailing with the Great Economic Acceleration in industrialized nations [Steffen et al., 2007, 2015]. It led to the doubling of appropriation of NPP by humans through the 20th century [Krausmann et al., 2013] and a concomitant rise in the consumption of fossil NPP to support that. This redirection of resources along different biological paths has led to humans and their domesticated animals comprising 175 million tons of carbon (estimates based on dry mass of 45% carbon) at the end of the 20th century, whilst wild terrestrial mammals represent just 5 million tons of carbon [Smil, 2011]; the total standing biomass of large terrestrial vertebrates in itself has been increased by about an order of magnitude over a “natural” baseline level by the tightly controlled and directed hyper-fertilization of terrestrial primary production [Barnosky, 2008].

Analyses suggest that human influence on the Earth’s biota is promulgating a contemporary mass extinction event [Barnosky et al., 2011, 2012, 2014; Kolbert, 2014; Pimm et al., 2014; Ceballos et al., 2015] comparable to the five most significant events of the Phanerozoic Eon. This potential Anthropocene mass extinction event, if it continues to unfold, would thus immediately succeed (stratigraphically) a major perturbation of the nitrogen cycle (from the Haber-Bosch process) that is leaving a geochemical signal in sedimentary deposits worldwide, and it would also be associated with changes in carbon isotope ratios in marine carbonates as a result of the anthropogenic CO2 emitted from the burning of hydrocarbons (a characteristically depleted 13C signature). These signatures would resemble in magnitude, though not in environmental forcing, patterns of chemical change in the physico-chemical stratigraphic record, in part suggesting changes in the make-up of primary producer versus consumer organisms, and which are features of earlier extinction events such as in the latest Proterozoic [reduced acritarch phytoplankton diversity as a result of surface ocean eutrophication, Nagy et al., 2009], or at the Precambrian-Cambrian boundary [perhaps reflecting changes to surface-ocean primary production as a result of acritarch extinction, see Zhu et al., 2006 for a summary].

The human impact is not restricted to the land. The scale of appropriation of marine biological production by a single species (Homo sapiens) is almost certainly unique in Earth history, far exceeding the grazing of mainly coastal waters by, for example, seabirds (and, before them, flying reptiles), or pinnipeds. The rates of domestication of marine plants and animals are rising rapidly [Duarte et al., 2007]. Although fish farming dates back over 2000 years [e.g., McCann, 1979], with early examples in Australia, East Asia and Europe, it was quantitatively trivial, except locally, until 1970. Since that time aquaculture has become a significant component of fish consumption [Naylor et al., 2002], and this is sometimes referred to as the “blue revolution”: in 2012 total world fisheries amounted to 158 million tons, of which 42% was aquaculture [FAO, 2014]. Having removed most top predators from the oceans, including by some estimates 90% of the largest predatory fish stocks [Jackson, 2008], humans are steadily fishing down the food chain [Pauly et al., 1998; WBGU, 2013]—in aggregate, 38% of marine fish have been lost, and the decline in certain baleen whales is up to 90% [McCauley et al., 2015]. At the same time, humans are continually harvesting, via a massive extension of bottom trawling powered by fossil fuels, the majority of the continental shelf, ranging now down onto parts of the continental slope [Puig et al., 2012]. Regions of the ocean undergoing fishery collapses are incapable of providing a full complement of ecosystem services, including those necessary to sustaining ever-growing human coastal populations [Worm et al., 2006].

Thus, it can be argued that the scale of human change to the biosphere with its transformation of terrestrial and marine ecologies, its use of fossil fuels to elevate the energy available to the global ecosystem, its impact on the standing biomass of terrestrial vertebrates, and its displacement of apex predators in both terrestrial and marine foodwebs, is of the magnitude of past major changes in the biosphere as shown in Figure 2.

 

Original paper:  Mark Williams, Jan Zalasiewicz, Colin N. Waters, Matt Edgeworth, Carys Bennett, Anthony D. Barnosky, Erle C. Ellis, Michael A. Ellis, Alejandro Cearreta, Peter K. Haff, Juliana A. Ivar do Sul, Reinhold Leinfelder, John R. McNeill, Eric Odada, Naomi Oreskes, Andrew Revkin, Daniel deB Richter, Will Steffen, Colin Summerhayes, James P. Syvitski, Davor Vidas, Michael Wagreich, Scott L. Wing, Alexander P. Wolfe, An Zhisheng. The Anthropocene: a conspicuous stratigraphical signal of anthropogenic changes in production and consumption across the biosphere. Earth’s Future, 2016; DOI: 10.1002/2015EF000339

 

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