Post by Steve Gardner on Nov 26, 2007 15:53:47 GMT
... and the Shanghai Cooperation Organisation
This, part five of a five part series, originally appeared here - THE ALL-SEEING i
In 1956, Marion Hubbert King, a geophysicist with the Shell Oil Company, presented a paper to the American Petroleum Institute entitled ‘Nuclear Energy and the Fossil Fuels’. He used this paper to make two predictions about the date the US would reach its peak rate of oil production: a low estimate, with a peak in 1965; and a high estimate, with a peak in 1970. Hubbert’s peak theory has proven to be broadly accurate – US production peaked in 1971.
“…it does pose a national problem of primary importance, the necessity, both with regard to requirements for domestic purposes and those for national defense, of gradually having to compensate for an increasing disparity between the nation’s demands for these fuels and its ability to produce them…” – Marion King Hubbert, writing in ‘Nuclear energy and the Fossil Fuels’
Working on the assumption that any given oil field has a finite endowment, Hubbert theorised that the production rate at a new reserve would increase exponentially at first before peaking at the depletion mid-point. Thereafter, the rate would decrease exponentially. He represented this by way of a broadly symmetrical bell-shaped graph, known as the Hubbert Curve. In simplistic terms, oil is plentiful and cheap to produce on the up-slope, but scarce and increasingly expensive on the down-slope.
By combining the Hubbert Curves of all known oil reserves, one can chart the overall rate of global oil production and estimate the date at which that rate will peak. In his paper, Hubbert placed ‘the date of the [world] peak at about the year 2000’. This is known as ‘Peak Oil’.
A post-Peak Oil world presents a potentially grave threat to mature, industrialised nations such as the US, whose manufacturing, construction, and transportation industries all require energy derived from oil. As Colin J Campbell, writing in The Energy Bulletin, points out, US economic expansion has historically been fuelled by debt, with cheap oil-based energy as collateral. But…
But declining oil production is only part of the problem; security of access is the other, particularly for the US, which consumes 25% of global output. The Hubbert Curve posits that if Peak Oil occurred in 2006 (as many now believe it did) then, absent of any mitigating factors, the rate of production in 2026 will be roughly equal to that of 1986. However, the combined effects of a growing population coupled with the increasing oil dependency of newly industrialised nations will lead to an escalation in resource-oriented competition.
To put this into perspective, in 1986 the rate of world oil production was just over 60 mb/d (million barrels per day) and the world’s population was around 5 billion. If Peak Oil occurred in 2006, then by 2026 the theoretical rate of production would also be around 60 mb/d, however, according to the US Census Bureau, the world’s population in 2026 will have grown to around 8 billion.
More significantly, growth in both population and oil consumption rates has not been and will not be uniform. Between 1986 and 2006, for example, the combined populations of China and India grew by around 31% (source: US Census Bureau), whilst the rest of the world grew by just 19%. Regional variations in oil dependency were even more pronounced, with consumption in China and India growing six times fatser than the overall world rate (source: BP Statistical Review of World Energy June 2006).
Asia’s rapidly growing population and oil dependency thus presents a threat to the ability of the US to meet its energy needs. This threat will be exacerbated by a decline in the relative importance of its traditional sources and an increase in the relative importance of the Middle East.
“While many regions of the world offer great oil opportunities, the Middle East, with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies…” – thingy Cheney, speaking at the London Institute of Petroleum in 1999 as CEO of Haliburton
Historically, despite acquiring around 10% of its oil imports from Saudi Arabia, the US has not relied heavily upon Middle East energy. Nonetheless, as Mamoun Fandy in his 1997 article for Foreign Policy in Focus explains, it has long viewed the region as vital to its strategic interests.
But dependence upon Canada, Mexico and Venezuela cannot be regarded as a long-term solution to its domestic production deficit. These countries have or are about to experience their own peak. By contrast, the Middle East isn’t expected to peak until around 2011. Furthermore, by 2020, with production rates declining more rapidly elsewhere, the Middle East is expected to produce more oil than all other regions combined.
In 2001, The National Energy Policy Development Group (known as the NEPD Group and chaired by newly appointed-Vice President, thingy Cheney) alluded to this ‘crossover event’ in its ‘National Energy Policy’ report.
At the time, Gulf oil producers accounted for just over 30% of total world production.
“I cannot think of a time when we have had a region emerge as suddenly to become as strategically significant as the Caspian. ” – thingy Cheney, speaking as CEO of Haliburton in 1998
But the Middle East is not the only region considered vital to US interests. The break-up of the Soviet Union in the aftermath of the Afghan-Soviet war has also led to a battle for energy dominance in and around the Caspian Sea. This battle has been termed the ‘New Great Game’ (see also Part Four: Operation Cyclone and the CIA’s Connection to Tim Osman), with interested parties competing not only for oil but also for the development of lucrative new transit routes as alternatives to the region’s existing infrastructure. Long-standing US policy goals regarding the now-independent littoral Central Asian Republics were reiterated in a statement to the House of Representatives Committee on International Relations by Doug Bereuter, the Chairman of the subcommittee on Asia and the Pacific. They include…
Throughout the 1990s, the pursuit of US policy was hampered by the highly politicised and unstable nature of the region, as well as its legacy infrastructure. As John Maresca, Vice President for International Relations at the Unocal Corporation explained to the House subcommittee on Asia and the Pacific:
Maresca went on to outline the need for two major infrastructure projects. The first, a pipeline west from the Caspian, terminating at either Novorossiysk in the Black Sea, or else the Mediterranean port of Ceyhan, a route backed by US oil companies, including Unocal. The second…
Both projects have since moved forward. An agreement was reached in 1999 to construct the Baku-Tbilisi-Ceyhan pipeline; and, in 2002, a memorandum of understanding paving the way for the construction of a trans-Afghanistan natural gas pipeline was signed by the leaders of Afghanistan, Turkmenistan and Pakistan.
In an attempt to counter US growing hegemonic interest in the region, Russia and China, together with co-signatories, Kazakhstan, Kyrgyzstan and Tajikistan (coloured blue in the map), signed the ‘Treaty on Deepening Military Trust in Border Regions’, forming the ‘Shanghai Five’. Uzbekistan was admitted to the group in 2001 and it became known as the The Shanghai Cooperation Organisation (SCO). Iran, Mongolia and Pakistan have all subsequently applied for membership to the SCO. At present they, together with Kazakhstan and India hold observer status (coloured green in the map).
The organisation’s declared aims are to develop a climate of regional ‘security and stability’; to promote ‘trade and economic relations among member states’; and to strengthen ‘coordination among member states on international arena’. These measures are intended to constrain the ‘three evil forces’ of ‘terrorism, separatism and extremism’; with the constraint of ‘separatism’ acting in part as a euphemism for Sino-Russian desires to prevent struggling Central Asian States from falling under Western spheres of influence.
More recently, Russia and China have begun to openly assert themselves. Russia, for example, has become increasingly reluctant to follow through on its commitment to relinquish state control of its energy reserves, and has challenged US interests in Algeria, where a recent arms deal was intricately woven into Russia’s participation in the development of Algeria’s energy production capabilities.
China has also been active in Africa, most notably in Angola, another key US supplier. Here it has helped to finance several infrastructure projects in a move that has seen Angola supplant Saudi Arabia as China’s largest exporter.
And, as reported by Reuters, China has begun ‘working on a raft of oil deals’ with Venezuela ‘giving impetus to President Hugo Chavez’s attempts to break his country’s dependence on oil exports to the United States’ and ‘stripping major US companies… of their majority stakes in heavy crude projects.’ This relationship will cause some consternation in the US, not only because of the effect it may have on US energy interests, but also because it has the potential to threaten the petrodollar’s hegemonic status. Venezuela, in common with some other major exporters to China, such as Iran, has been exploring a switch to the petroeuro as the unit of accounting for oil transactions (see also Part Two: The Bretton Woods Agreement and the Rise of the Petrodollar). If it does make this switch, it could well prompt China to step-up its diversification away from the dollar, which in turn could cause irresistible downward pressure on the US currency.
You can find out more about Peak Oil and related issues by visiting the web site of The Association for the Study of Peak Oil & Gas (ASPO).
This, part five of a five part series, originally appeared here - THE ALL-SEEING i
~~~~~
In 1956, Marion Hubbert King, a geophysicist with the Shell Oil Company, presented a paper to the American Petroleum Institute entitled ‘Nuclear Energy and the Fossil Fuels’. He used this paper to make two predictions about the date the US would reach its peak rate of oil production: a low estimate, with a peak in 1965; and a high estimate, with a peak in 1970. Hubbert’s peak theory has proven to be broadly accurate – US production peaked in 1971.
“…it does pose a national problem of primary importance, the necessity, both with regard to requirements for domestic purposes and those for national defense, of gradually having to compensate for an increasing disparity between the nation’s demands for these fuels and its ability to produce them…” – Marion King Hubbert, writing in ‘Nuclear energy and the Fossil Fuels’
Working on the assumption that any given oil field has a finite endowment, Hubbert theorised that the production rate at a new reserve would increase exponentially at first before peaking at the depletion mid-point. Thereafter, the rate would decrease exponentially. He represented this by way of a broadly symmetrical bell-shaped graph, known as the Hubbert Curve. In simplistic terms, oil is plentiful and cheap to produce on the up-slope, but scarce and increasingly expensive on the down-slope.
By combining the Hubbert Curves of all known oil reserves, one can chart the overall rate of global oil production and estimate the date at which that rate will peak. In his paper, Hubbert placed ‘the date of the [world] peak at about the year 2000’. This is known as ‘Peak Oil’.
A post-Peak Oil world presents a potentially grave threat to mature, industrialised nations such as the US, whose manufacturing, construction, and transportation industries all require energy derived from oil. As Colin J Campbell, writing in The Energy Bulletin, points out, US economic expansion has historically been fuelled by debt, with cheap oil-based energy as collateral. But…
…[t]he decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. The investment community however faces a dilemma. It desires to protect its own fortunes and those of its privileged clients while at the same time is reluctant to take action that might itself trigger the meltdown.
But declining oil production is only part of the problem; security of access is the other, particularly for the US, which consumes 25% of global output. The Hubbert Curve posits that if Peak Oil occurred in 2006 (as many now believe it did) then, absent of any mitigating factors, the rate of production in 2026 will be roughly equal to that of 1986. However, the combined effects of a growing population coupled with the increasing oil dependency of newly industrialised nations will lead to an escalation in resource-oriented competition.
To put this into perspective, in 1986 the rate of world oil production was just over 60 mb/d (million barrels per day) and the world’s population was around 5 billion. If Peak Oil occurred in 2006, then by 2026 the theoretical rate of production would also be around 60 mb/d, however, according to the US Census Bureau, the world’s population in 2026 will have grown to around 8 billion.
More significantly, growth in both population and oil consumption rates has not been and will not be uniform. Between 1986 and 2006, for example, the combined populations of China and India grew by around 31% (source: US Census Bureau), whilst the rest of the world grew by just 19%. Regional variations in oil dependency were even more pronounced, with consumption in China and India growing six times fatser than the overall world rate (source: BP Statistical Review of World Energy June 2006).
Asia’s rapidly growing population and oil dependency thus presents a threat to the ability of the US to meet its energy needs. This threat will be exacerbated by a decline in the relative importance of its traditional sources and an increase in the relative importance of the Middle East.
“While many regions of the world offer great oil opportunities, the Middle East, with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies…” – thingy Cheney, speaking at the London Institute of Petroleum in 1999 as CEO of Haliburton
Historically, despite acquiring around 10% of its oil imports from Saudi Arabia, the US has not relied heavily upon Middle East energy. Nonetheless, as Mamoun Fandy in his 1997 article for Foreign Policy in Focus explains, it has long viewed the region as vital to its strategic interests.
Securing the flow of affordable oil is a cornerstone of U.S. Middle East policy. The U.S. strategy of dual containment of Iran and Iraq, designed to ensure that neiher [sic] Iraq nor Iran is capable of threatening neighboring Gulf countries, is inextricably linked to Washington’s oil policy. Currently, U.S. domestic oil production supplies about 50% of total U.S. consumption. Foreign sources provide the rest, primarily Canada, Venezuela, Mexico, and several African countries.
But dependence upon Canada, Mexico and Venezuela cannot be regarded as a long-term solution to its domestic production deficit. These countries have or are about to experience their own peak. By contrast, the Middle East isn’t expected to peak until around 2011. Furthermore, by 2020, with production rates declining more rapidly elsewhere, the Middle East is expected to produce more oil than all other regions combined.
In 2001, The National Energy Policy Development Group (known as the NEPD Group and chaired by newly appointed-Vice President, thingy Cheney) alluded to this ‘crossover event’ in its ‘National Energy Policy’ report.
By 2020, Gulf oil producers are expected to supply between 54% and 67% of the world’s oil. Thus the global economy will almost certainly continue to depend upon the supply of oil from Organisation of Petroleum Exporting Countries (OPEC) members, particularly in the Gulf.
At the time, Gulf oil producers accounted for just over 30% of total world production.
“I cannot think of a time when we have had a region emerge as suddenly to become as strategically significant as the Caspian. ” – thingy Cheney, speaking as CEO of Haliburton in 1998
But the Middle East is not the only region considered vital to US interests. The break-up of the Soviet Union in the aftermath of the Afghan-Soviet war has also led to a battle for energy dominance in and around the Caspian Sea. This battle has been termed the ‘New Great Game’ (see also Part Four: Operation Cyclone and the CIA’s Connection to Tim Osman), with interested parties competing not only for oil but also for the development of lucrative new transit routes as alternatives to the region’s existing infrastructure. Long-standing US policy goals regarding the now-independent littoral Central Asian Republics were reiterated in a statement to the House of Representatives Committee on International Relations by Doug Bereuter, the Chairman of the subcommittee on Asia and the Pacific. They include…
…fostering the independence of the States and their ties to the West; breaking Russia’s monopoly over oil and gas transport routes; promoting Western energy security through diversified suppliers; encouraging the construction of east-west pipelines that do not transit Iran; and denying Iran dangerous leverage over the Central Asian economies.
Throughout the 1990s, the pursuit of US policy was hampered by the highly politicised and unstable nature of the region, as well as its legacy infrastructure. As John Maresca, Vice President for International Relations at the Unocal Corporation explained to the House subcommittee on Asia and the Pacific:
Central Asia is isolated. Their natural resources are landlocked, both geographically and politically. Each of the countries in the Caucasus and Central Asia faces difficult political challenges. Some have unsettled wars or latent conflicts. Others have evolving systems where the laws and even the courts are dynamic and changing. In addition, a chief technical obstacle which we in the industry face in transporting oil is the region’s existing pipeline infrastructure.
Because the region’s pipelines were constructed during the Moscow-centered Soviet period, they tend to head north and west toward Russia. There are no connections to the south and east. But Russia is currently unlikely to absorb large new quantities of foreign oil. It’s unlikely to be a significant market for new energy in the next decade. It lacks the capacity to deliver it to other markets.
Maresca went on to outline the need for two major infrastructure projects. The first, a pipeline west from the Caspian, terminating at either Novorossiysk in the Black Sea, or else the Mediterranean port of Ceyhan, a route backed by US oil companies, including Unocal. The second…
…a pipeline south from Central Asia to the Indian Ocean. One obvious route south would cross Iran, but this is foreclosed for American companies because of U.S. sanctions legislation. The only other possible route is across Afghanistan, which has of course its own unique challenges. The country has been involved in bitter warfare for almost two decades, and is still divided by civil war. From the outset, we have made it clear that construction of the pipeline we have proposed across Afghanistan could not begin until a recognized government is in place that has the confidence of governments, lenders, and our company.
Both projects have since moved forward. An agreement was reached in 1999 to construct the Baku-Tbilisi-Ceyhan pipeline; and, in 2002, a memorandum of understanding paving the way for the construction of a trans-Afghanistan natural gas pipeline was signed by the leaders of Afghanistan, Turkmenistan and Pakistan.
In an attempt to counter US growing hegemonic interest in the region, Russia and China, together with co-signatories, Kazakhstan, Kyrgyzstan and Tajikistan (coloured blue in the map), signed the ‘Treaty on Deepening Military Trust in Border Regions’, forming the ‘Shanghai Five’. Uzbekistan was admitted to the group in 2001 and it became known as the The Shanghai Cooperation Organisation (SCO). Iran, Mongolia and Pakistan have all subsequently applied for membership to the SCO. At present they, together with Kazakhstan and India hold observer status (coloured green in the map).
The organisation’s declared aims are to develop a climate of regional ‘security and stability’; to promote ‘trade and economic relations among member states’; and to strengthen ‘coordination among member states on international arena’. These measures are intended to constrain the ‘three evil forces’ of ‘terrorism, separatism and extremism’; with the constraint of ‘separatism’ acting in part as a euphemism for Sino-Russian desires to prevent struggling Central Asian States from falling under Western spheres of influence.
More recently, Russia and China have begun to openly assert themselves. Russia, for example, has become increasingly reluctant to follow through on its commitment to relinquish state control of its energy reserves, and has challenged US interests in Algeria, where a recent arms deal was intricately woven into Russia’s participation in the development of Algeria’s energy production capabilities.
China has also been active in Africa, most notably in Angola, another key US supplier. Here it has helped to finance several infrastructure projects in a move that has seen Angola supplant Saudi Arabia as China’s largest exporter.
And, as reported by Reuters, China has begun ‘working on a raft of oil deals’ with Venezuela ‘giving impetus to President Hugo Chavez’s attempts to break his country’s dependence on oil exports to the United States’ and ‘stripping major US companies… of their majority stakes in heavy crude projects.’ This relationship will cause some consternation in the US, not only because of the effect it may have on US energy interests, but also because it has the potential to threaten the petrodollar’s hegemonic status. Venezuela, in common with some other major exporters to China, such as Iran, has been exploring a switch to the petroeuro as the unit of accounting for oil transactions (see also Part Two: The Bretton Woods Agreement and the Rise of the Petrodollar). If it does make this switch, it could well prompt China to step-up its diversification away from the dollar, which in turn could cause irresistible downward pressure on the US currency.
You can find out more about Peak Oil and related issues by visiting the web site of The Association for the Study of Peak Oil & Gas (ASPO).
