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Oil, CO2 and Undershirts

4 February 2011

Oil, CO2 and Undershirts

By Gwynne Dyer

There is an extraordinary disconnect between what the experts write about oil prices, and what is likely to happen out in the real world. The pundits inhabit an economist’s perfect dream-world, where oil prices respond to changes in supply and demand that are driven mainly by production costs and economic conditions. In the real world, it’s a lot more complex.

The question of price is back on the table, because oil just broke through the $100-per-barrel level for the second time in history. (The first time was July, 2008, when it briefly reached $147 per barrel before falling back to a low of $33 the following December.) But the experts have concluded that this time, cheap oil is never coming back.

A typical offering was a document published by the oil industry giant BP a couple of weeks ago. “BP Energy Outlook 2030″ forecast that fossil fuels – oil, gas and coal – will still account for 80 percent of primary energy worldwide in 2030.

Moreover, total world energy consumption will grow very fast. Demand in the developed countries will not grow by much, if at all, in the next twenty years, but it will rise by almost two-thirds in the larger economies of the developing world, notably China’s and India’s.

If 80 percent of the energy mix is still fossil fuels in twenty years’ time, then the amount that the world burns will have to rise, too. Oil currently accounts for 35 percent of primary energy in the world, and if that ratio persists then the we’re going to need a lot more of the stuff. That means the price will go up and stay up.

Finding new oil will get more expensive, for the cheap, “sweet” oil in easy-to-reach places was developed first. Most of the new oil will be found under the sea, or in the Arctic, or trapped in tar sands in Canada and Venezuela, or it will be “sour” oil with a high sulphur content. The price per barrel has to be high to make it worthwhile to develop those resources – but it WILL stay high, because the demand for oil is going to rise so steeply.

Or so it says in “BP Energy Outlook 2030.” Well, you didn’t expect an oil company to publish a report saying that demand for its product is going to dwindle and prices are going to fall, did you? But BP’s analysis leaves out politics, technology and even fashion.

The politics first. One major implication of a rising demand for oil is that the importance of Middle Eastern oil will grow, for this is the one place where relatively modest investments can increase production rapidly. However, the Middle East is unpredictable politically, and getting more so by the moment. The consumers hate uncertainty, and this gives them a strong incentive to move to alternative sources of energy.

Concerns about global warming are pushing them in the same direction. The key to stopping the warming is to cut the amount of fossil fuels we are burning, and ultimately to stop using them entirely.

Government programmes to do that already exist in most countries, and even in the United States, where Congress blocks direct action, the Obama administration has used the Environmental Protection Agency to raise the fuel efficiency standard for American-built vehicles to 35.5 miles per gallon by 2016. (The current average is 25 mpg.) That alone will result in a 29 percent cut in American oil usage.

Now the technology. The hunt for a substitute fuel for vehicles is already underway. ExxonMobil, for example, is investing $600 million in research into producing a cost-effective alternative from biomass – specifically, from algae that require no agricultural land and use only waste or salt water.

A rival process would combine hydrogen with carbon dioxide drawn directly from the air (by “artificial trees,” a technology that is developing very fast), to create an octane-type fuel for cars. Like its algae-based rival, this fuel would be carbon-neutral, and could be delivered through existing distribution systems and used in current vehicle engines. Either solution would be a real challenger to $100-per-barrel oil.

And finally, fashion. In the 1934 movie “It Happened One Night,” Clark Gable, the leading male movie idol of the day, undressed to get into bed with Claudette Colbert (they were married, of course), and under his shirt was…a bare chest! He wasn’t wearing an undershirt! Shock, horror – and then the treacherous thought: why ARE we all wearing undershirts? In less than a year, the market for undershirts collapsed.

So here we have a world where almost all the cars are oil-fuelled or at best “hybrid,” although electric-powered alternatives are beginning to appear on the market. The electrics are still not satisfactory for long-distance driving, but mass-produced cars burning carbon-neutral oil substitutes in internal combustion engines are probably only five to ten years away.

And in ten or fifteen years’ time, after we have had a couple of really big environmental disasters or a new oil embargo by Middle Eastern oil producers, might the motorised masses ask themselves: why ARE we all driving petroleum-fuelled cars? And act on their conclusions.

The BP study is a soothing bedtime story for worried oil industry execs. In the real world, the long-term future of oil prices may be down, not up.

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To shorten to 725 words, omit paragraphs 6 and 12. (“Finding…steeply”; and “A rival…oil”)

Gwynne Dyer’s latest book, “Climate Wars”, is distributed in most of the world by Oneworld.

NOTE: 25 mpg is 9.41 litres per 100 km (European) and 10.63 km/litre (Japan). 35.5 mpg is 6.63 litres per 100 km (European) and 15.1 km/litre (Japan).

The Curse of Oil

20 July 2003

Sao Tome and the Curse of Oil

By Gwynne Dyer

Why has Algeria been devastated by tyranny and civil war, while neighbouring Morocco is peaceful, relatively democratic, and no poorer? Why is Angola, once Portugal’s richest African colony, a wasteland of poverty, violence and corruption with enclaves of glittering wealth, while Mozambique, its poor relative in colonial times, is now peaceful, fairly equal, and politically open? Why was Iraq under Saddam Hussein even more violent and repressive than Syria, its near twin that has also been ruled by the Baath Party for over three decades?

Because for countries in the developing world, oil wealth is usually a disaster: Algeria, Angola and Iraq all have a lot of oil, while Morocco, Mozambique and Syria do not. All of these countries had fragile political structures, ethnically complex populations and difficult colonial pasts, but the ones that descended into a full-spectrum nightmare were the ones that struck it rich with oil. To see how it works, consider Sao Tome, which began its descent last week.

Sao Tome is a small island state in the Gulf of Guinea left over from Portugal’s African empire. It fell on hard times economically after independence in 1975, but recently undersea oil was found straddling the seabed border between Sao Tome and Nigeria. Current estimates suggest that there are between 6 and 11 billion barrels in Sao Tome’s section — enough for a production of around a million barrels a day.

Since there are only 140,000 people in Sao Tome, that would yield enough revenue to increase their current per capita income of $280 per year twenty-fold if it was divided up evenly. Divided up much less equally, however, it would make some people disgustingly rich. Last week some people with guns decided that that was a much more appealing prospect.

Sao Tome has been a multi-party democracy since 1990, but as oil wealth loomed the local political parties began accusing one another of being under the influence of foreign oil interests. By last year’s parliamentary elections, some militants of the rival parties were going around armed — and in January President Fradique de Menezes dissolved the parliament before it could limit his powers to negotiate oil contracts with oreigners.

De Menezes had just signed a deal settling a long-standing dispute with Nigeria over the two countries’ undersea frontier that gave the latter 60 percent of the oilfield, and his opponents were convinced that he had been bought off. In April some former mercenaries from Sao Tome who fought for South Africa’s apartheid regime in the infamous ‘Buffalo Battalion’ joined a minor party called the Christian Democratic Front (FDC) and called for a rebellion. And then on 16 July, while de Menezes was visiting Nigeria, there was a coup.

The coup leader is a well-known army officer, Major Fernando Pereira, but his partners are the guns-for-hire of the FDC. As de Menezes says, “It’s only for the oil that they have seized power” — the first big flow of revenue, at least $100 million, will come with the sale of rights to nine offshore blocs in October — and so Sao Tome starts its descent into hell. Or maybe not, because the outside world’s attitude is changing.

The other Portuguese-speaking countries of Africa, backed up by Nigeria and South Africa, have threatened to use force if the soldiers do not allow President de Menezes to return. The United States, which plans a military base in Sao Tome to protect the growing share of its oil imports that comes from countries around the Gulf of Guinea, also opposes the coup. And the oil companies themselves are under pressure to clean up their act.

The days of huge bribes as standard operating practice for Western oil and mining companies in the Third World are numbered, because investors, human rights activists, and even the companies themselves are starting to insist on full disclosure of payments made. BP has taken the lead, posting its production-sharing agreement with Azerbaijan on a website and disclosing ‘signing payments’ that it made to Angola.

The Angolan state oil company threatened to expel BP if it published any further information, but other companies can see the logic of BP’s move. The dirty deals may mean bigger profits for oil companies, but they can also mean bigger problems because the local people hate them for it. That is what drives the chronic violence against foreign companies operating in Nigeria’s oil-rich Delta region, for example.

So there has been a surprisingly positive response to the British government’s Extractive Industries Transparency Initiative, launched last year to persuade oil, gas and mining companies to reveal their payments to resource-rich countries voluntarily. And the non-governmental organisation Global Witness has launched a parallel campaign called ‘Publish What You Pay’, asking stock exchanges to require listed oil and gas companies to publish a single annual figure of net payments in each country where they operate.

Mobil is facing a huge criminal case over alleged bribes in Kazakhstan, and the French company Elf faces similar action over payments in various African countries. The tide is gradually turning against the old way of doing business — but whether it will turn in time to save Sao Tome is another question.

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To shorten to 725 words, omit paragraphs 10 and 11. (“The  Angolan…operate”)