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The World Oil Industry’s Mad Gamble For Profits: Gaming Peak Oil, Denying Climate Change, Wrecking the Alternatives

For the world’s international oil companies, what does a combination of energy scarcity, political dominance, and captive consumers mean? Enormous profits.

And, for the rest of us, what does it mean? Increasing transportation costs, increasing risk of future economic shocks, and increasing damage due to human-caused climate change.

Since the mid 2000s, year after year, top oil companies have raked in over one hundred billion dollars in net earnings. This influx of cash to corporations sitting on dirty, dangerous and depleting resources, came as a result of a world transportation system dependent on liquid fuels of which oil composed more than 70% and on a resource, itself, that, since the mid 2000s, became far more difficult to extract. This combination of a peak in lease condensate supplies and a monopolization of that supply sent both oil company profits (along with power and influence) to heights previously unattainable.

It also has resulted in an industry entirely incentivized to ‘dance with the devil’ in order to extend and maintain that profitability. This devil’s dance includes begging the risk of increased economic shocks due to oil depletion, the active undermining of any viable alternative to oil as a transportation fuel, and a related and ongoing campaign to halt and/or delay action on human caused climate change. In such cases never before has an industry been so incentivized to profit from wanton destruction.

Playing Games With Peak Oil

Any time an oil supply crunch arises, the oil industry makes immense profits. These profits occur on many fronts. First, as world oil production peaks or struggles along a plateau, prices rise as captive consumers compete for the scarce commodity. The result is that all oil assets held by these companies suddenly become far more valuable. Profits soar, providing monies for additional investments into marginal, dirty, and destructive supplies like tar sands, fractured oil, deep water oil or polar oil. This massive additional investment extends the life of all oil supplies by pushing the plateau peak out for years or even decades.

So while oil companies make a profit on the economic shocks oil dependency causes to the system, the lifespan of these companies are extended through the use of more costly and polluting marginal supplies. This new access provides oil companies with a ‘smoke screen’ behind which they can publicly claim that peak oil and, more importantly, oil depletion does not exist. It provides fodder for their arguments and it sets up the world’s consumers for another fleecing as prices ramp higher or, even worse, when the next oil shock emerges.

This gamesmanship has been publicly visible over the past few years as industry supporting think-tanks, ‘experts,’ and media sources have published numerous articles declaring the end of peak oil and predicting world liquids supplies will exceed 120 million barrels per day by 2020. These claims, of course, are completely false. Lease condensate supplies have been on a plateau of around 75 million barrels per day since 2005. Total liquids production, which includes biofuels and natural gas liquids (which are less fungible as a transportation fuel), have only grown from 84 million barrels per day to 89 million barrels per day over the past 8 years. This anemic rate of growth would have to increase by nearly an order of magnitude to reach the amazing 120 million barrels per year predicted by 2020.

But, as with much information published by oil industry cheerleaders, the ‘data’ is less designed to be factual than to create the impression of abundance. Under such a smoke-screen, the oil industry can go about its work of manipulating public policy to suppress alternatives and efficiency increases so as to set consumers/the public up for more fleecing via a combination of over-consumption, scarcity and, in due course, during another oil shock.

Sooner or later, the next shock will come. Sooner if the oil industry is mostly successful in its dominance campaigns, and only more slowly if all they are able to achieve is a stale-mate. But, rest assured, the shock will come unless a wholesale pursuit of alternative fuels and transportation technologies emerge to shake the foundation of the world’s current energy supply structure. The depletion rates for most new oil sources are too high, the costs too great, and the resource intensity too high for more shocks not to emerge.

In the boardrooms, the above set of circumstances is probably what oil company execs are banking on. So we can take the false predictions of abundance, for what they are: industry fluff.

As an example, we can take into account a claim by oil industry cheerleader Daniel Yergin, in 2005, that world oil production would reach 101 million barrels per day by 2010-2012. Peak oilers, by contrast, thought world oil production would stall at around 84 million barrels per day. For my part, I made a prediction of around 90 million barrels per day by this time (link here).

Between the peak oilers and industry cheerleaders, who was more correct? In the end, Yergin’s prediction was off by a stunning 12 million barrels per day. Peak oilers, by contrast, were off by 5 million barrels per day. And, when it comes to lease condensate production, the peak oilers are still 100% correct.

Yet, because of its influence over media, the oil industry has managed to create the impression that peak oil theory is debunked. And, in doing so, it has also managed to reduce urgency to provide transitional technologies thereby making another oil crisis all but certain.

Climate Nightmares

There is, of course, an alternative scenario between the oil industry cheerleaders and the peak oilers. It lies along a middle ground of continuously struggling world oil supply based on increasingly expensive fuels. This middle ground jumps from oil and gasoline price increase to oil and gasoline price increase as new supplies are slowly, arduously tortured from the ground.

In truth, despite all the mad media frenzy about oil depletion and scarcity being a myth, this particular scenario represents the oil industry’s best, most realistic hope. Prices remain high enough for excessive profits, oil maintains its death-grip monopoly over transportation fuels, and slowly, ever-so-painfully, new unconventional sources allow for slowly increasing overall supplies.

The glaring problem with this scenario is it consigns the world to an ever-increasing contribution to world greenhouse gas emissions. All the new, unconventional sources pollute more than traditional oil. Fractured shale leaks methane into the atmosphere as part of its production process. Large volumes of the natural gas produced as part of the oil fracturing process is flared off into the atmosphere, greatly contributing to world CO2 emissions. And tar sands, cynically trotted out as a means for North America to achieve oil independence, is as polluting as coal even as its production requires a greater and greater burning of Canada’s natural gas supplies (currently 8% of Canada’s natural gas production is simply wasted in the production of dirty tar sands).

With unconventional fuels like the ones mentioned above composing an ever-greater portion of total world oil production, oil’s contribution to climate change increases even if net oil production remains level or even declines slightly. Even worse, unconventional fuels may allow for a slow increase in world oil production, while, possibly, more than doubling oil’s contribution to climate change.

For this reason, the world’s oil companies are heavily invested in climate change denial. They fund stealth campaigns via agencies like ALEC and the Heartland Institute to block any effect to establish solutions to climate change via feed in tariffs, renewable energy standards (that require an increasing portion of energy to come from renewables), vehicle efficiency standards, a carbon tax, or any other effective policy driving toward speeding or even facilitating a transition from fossil fuels to renewables. And in order to have any semblance of moral justification to pursue such an insane and harmful set of policies, these agencies must actively deny the likely, very harmful, effects of  human caused climate change.

The result is that an immensely powerful, wealthy, and politically connected industry is hell-bent on increasing the likelihood that Earth becomes hellish.

 

Blindness, Cynicism, and Greed

That the world’s oil companies, which in the 19th century brought light, mobility, and greater economic prospects to an ever-expanding number of people, have come to this pass is just one more example of the human tragedy the Greeks playwrights were so adept at portraying. Like many past tragic villains, the world’s oil companies have chosen blindness, cynical pride, and greed in their most recent groping for wealth and power. This tragedy, if it is allowed to play itself out, will result in the terrible downfall of many of the world’s most powerful energy companies. But, sadly, even as this happens, the economic and environmental shocks created will challenge the adaptive capacity of all human civilizations, perhaps even resulting in their end.

The reason for this is that despite oil company assurances, more economic shocks from oil depletion are on the way. At the same time, only a small window to start reducing world-wide fossil fuel consumption in order to prevent the worst shocks of climate change exists. Among scientists, the pessimists believe CO2 emissions must peak by 2015 to preserve a livable climate. The optimistic scientists believe this date is closer to 2028. Any average of these cases doesn’t give us much time and any continued burning of fossil fuels and increasing carbon emissions into the atmosphere comes at serious and terrible risk. In light of these two contexts, political and media sand bagging by the world’s oil (and related gas and coal) companies is very, very, very destructive.

A Call to Make A Stand On Keystone XL

It is for the above reasons that forcing the cancellation of Keystone XL is so important. Its cancellation will result in a slowed development of tar sands and, possibly, in reduced flows of tar sands to market. Such a cancellation will also require serious and rapid energy policy on the part of the United States to transition to much higher efficiency vehicles and vehicles based on alternate fuels — like electric vehicles and plug-in electric hybrids. It will also establish a strong precedent for beginning to reduce net carbon emissions — not just in the US, but worldwide. The reason is that by demonstrating the ability to turn away from tar sands, the US will have displayed leadership on a key issue of our time.

Keystone XL won’t be the only fossil fuel megaproject the US must turn its back on. But it would be the first. And setting a precedent now will make future contentious choices more easy to make.

It may seem a hard choice now. But, if we look at it rationally, it really is the only choice that includes a prosperous future.

Links:

Please be one of the one million public comments against the Keystone XL Pipeline

 

 

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Joe Nocera’s Real Carbon Problem: Attacking Climate Leaders While Promoting Dangerous Energy

Joe Nocera has, in a few short weeks, written pieces that promote tar sands extraction, promote enhanced oil extraction, promote increased reliance on coal, support harmful actions by fossil fuel companies and attack top supporters for transitioning to clean energy: climate scientist James Hansen and environmentalist Bill McKibben.

Joe’s rhetoric is so similar to those of the top oil company executives, one wonders if he should be on their payroll and not that of the, supposedly liberal, New York Times.

His nonsensical and sometimes contradictory assertions run a gambit of misinformed claims. I will do my best to deconstruct these claims for you and show that Joe’s statements are little more than a poorly veiled rhetorical defense of an industry that is heavily invested to profit from harm to the climate and, by extension, the rest of us.

Claim #1:  The Keystone XL Pipeline will not result in enhanced tar sands extraction

Unfortunately, both Joe and the State Department appear to be on the same page with this one. Both have claimed, obtusely, that somehow the hundreds of miles of pipelines constructed during the past four years disproves the fact that Keystone XL will enhance tar sands extraction.

In accepting this, highly flawed, assertion, one must also entirely ignore the geographical importance of Keystone in cheaply linking tar sands extraction to international ports while turning a blind eye to statements from the tar sands industry itself. In fact, according to industry reports, the Keystone XL would allow for the additional, less expensive transport of over 900,000 barrels per day of dirty tar sands oil. This oil would then be sold on the international market at much higher prices (90-120 dollars per barrel) than it is sold for on the continent (60-80 dollars per barrel). In addition to adding as much as 900,000 barrels per day to current tar sands extraction, the pipeline would make economical highly expensive extraction of marginal oil, further increasing exploitation of the most dirty form of oil on the planet.

It is, perhaps, a coincidence that the Alberta tar sands industry published extensive advertisements in the New York Times during the time of Joe Nocera’s initial op-ed defending their industry. The fact that the same article included an attack on James Hansen, likely the most respected and prescient climate scientist living today, for his statement that exploiting tar sands would be ‘climate change game over,’ also calls into question the intellectual integrity of Joe’s article.

Joe apparently ignores the fact that as much as 1.7 trillion barrels of the dirty tar sands could ultimately be extracted from Alberta. A massive volume of expensive, very polluting oil the industry is desperate to sell. Does Joe purport to know more about the climate impacts of such a massive tar sands extraction than James Hansen? If so, Joe’s climate credentials are somewhat lacking when compared to our NASA climate scientist. Perhaps he should, as he advised Hansen, withdraw his political activism and stick to matters he can speak more responsibly about?

Claim #2: Coal carbon capture and storage is currently an economical and practical way to solve the climate crisis

One would think that Joe would stop at his promotion of exploiting one of the biggest carbon bombs on the planet. Unfortunately, he has just shifted from one to another.

For more than 20 years, the coal industry has promoted an expensive and dirty carbon capture and storage technology in an attempt to make coal seem greener and less harmful to the environment. For more than 15 years, the coal industry has operated pilot plants as examples of innovation in this new form of energy. But considering the fact that carbon capture and storage has yet to reduce costs to levels competitive with gas, wind or solar energy, one wonders if it is little more than an industry show pony. Energy from carbon capture and storage plants costs between 15 and 30 cents per kilowatt hour, as much as three times that of traditional coal. Furthermore, new solar energy in the region of the Summit facility Joe foists as a viable solution costs as little as 5.8 cents per kilowatt hour. That’s three to five times less than carbon capture and storage and without having the additional worry of what to do with all that dangerous stored carbon.

Looking more closely at the economics, the Summit facility Joe holds forward as an example of what can be used throughout China costs 2.5 billion dollars. That facility would produce only 400 megawatts of energy. At the same price, converting all of China’s coal facilities to CCS would cost a staggering 3 trillion dollars. Considering that wind and solar prices continue to fall and looking at price projections through 2020, phasing in wind and solar to replace the same amount of production would cost between 2 and 6 times less.

Even worse, carbon capture would produce a massive volume of carbon dioxide. Considering it would be nearly impossible to sell all that carbon for useful purposes (Joe suggests to use it for fertilizer and enhanced oil extraction), much of it would be pumped into underground storage. Accessing and maintaining this storage is an additional cost not currently included in the operation of a CCS powerplant. Furthermore, underground storage is subject to risk of catastrophic release in the event of an earthquake or any other stress that fractures the rock of storage locations.

One other issue Joe seems to have overlooked in his grandiose vision for converting Chinese coal to CCS is water. Though CCS manages to pull carbon out of its smokestack emissions, it actually increases water pollution by producing more chemical effluent. China already has very severe water pollution issues. Such a massive adoption of CCS would make those problems even worse.

Claim #3: Captured carbon used to enhance oil extraction will help reverse climate change

Sadly, Joe’s suggestion to use CO2 produced by coal to enhance oil extraction betrays a stunning ignorance to the problem posed by human caused climate change. Oil, coal, and gas all result in carbon emissions. So using a technology that reduces coal carbon emissions to increase oil carbon emissions (via enhanced oil extraction) makes no sense as a solution to human caused climate change. Joe seemed to miss the fact that only 1/3 of current fossil fuel reserves can have their carbon placed in the atmosphere before we beg a civilization-wrecking crisis. Enhanced oil extraction would expand those total reserves. So even if most coal plants could be converted to CCS, switching coal carbon with oil carbon would only serve to make the problem worse.

In his blanket promotion of CCS, Joe also seems to blithely ignore the technology’s history. It has not served as a serious solution to the climate problem so much as a distraction the coal industry carts out every time it comes under fire. Historically, it has not represented a path the coal industry has pursued to any substantial degree. Instead, the ‘solution’ only lasts long enough to pull interest away from renewables like wind and solar. Once these solutions have been, again, put in their respective box, the coal industry goes back to its old, carbon polluting ways.

Claim #4: Fossil fuel use isn’t the real problem

In fact, Joe’s arguments turn a completely blind eye to ongoing lobbying efforts by oil, gas, and coal companies to emit as much carbon as they possibly can. The reason for this is that it costs money to capture the dangerous carbon. And the industry is hell-bent to enhance profits. Any industry efforts to actually reduce emissions have been little more than cynical lip-service.

Joe states that “The enemy is not fossil fuels; it is the damage that is done because of the way we use fossil fuels.”

And this statement would be true if one, the fossil fuel industry actually produced viable means to economically capture carbon and, two didn’t work has hard as it could, via lobbying and PR to continue emitting as much carbon as possible.

Like Joe, the fossil fuel industry has instead attacked climate scientists, done their best to deny the science that points toward dangerous impacts from global warming, attempted to suppress any real solutions to climate change via wind, solar and vehicle to grid technology, and, when necessary, carted out nonsolutions, like the current coal CCS technology, as a smokescreen to criticism by those concerned about climate change.

Carbon Joe’s Deafening Silence on Real Solutions

Perhaps even more damaging than Joe’s outright attacks on environmental leaders like Bill McKibben and climate scientists like James Hansen is his deafening silence on real solutions. Joe has mentioned nothing about the ongoing precipitous fall in solar energy prices. He has said little about the current viability of wind power. He has been mute on the issue of a growing electrical vehicle market in the United States. And he has practically ignored the burgeoning potential of next generation biofuels like cellulosic ethanol.

These technologies form a real potential for mitigating climate change, preventing the worst impacts, and transitioning away from fossil fuels that have been so dirty, climatologically dangerous, and which ultimately deplete to uneconomic, expensive uselessness. Instead, his defense of these fuels is from the frame of one specifically supporting their narrow special interest. A special interest currently in the political and economic position to profit from harm to the rest of us.

Links:

The Dangerous Myth that Climate Change is Reversible

A Real Carbon Problem

350.org

The Morality of Keystone XL Protests in Context: Why Dangerous, Expensive Oil is Best Left In the Ground

NOKXL

(Image source: 350.org)

NASA scientist and climate activist James Hansen has called the tar sands ‘climate game over.’ And it is easy to understand why. Alberta’s tar sands and other deposits like it around the world are the worst polluting form of oil on the planet. The bitumen burns very dirty and is the most carbon intensive fuel on Earth to extract. Currently, Canada uses about 8% of its entire natural gas supply just to push out 1.6 million barrels per day of the toxic stuff. And if greater and greater volumes of tar sands are produced, more and more of this gas supply will be used — before the oil refined from tar sands is even burned in a vehicle.

Some estimates even show that tar sands is as dirty as some forms of coal. So with an estimated 1.7 trillion barrels of ultimately recoverable tar sands sitting under Alberta’s pristine arboreal forests, it is no wonder why James Hansen has called the exploitation of this dirty and expensive resource ‘climate game over.’

 

Oil Companies Push For Exploitation

AlbertaTarSands3_1

(source: Vancouver Observer)

All that said, there remains an economic argument, no matter how morally flimsy, to be made for the exploitation of tar sands and its ongoing ecocide. And what it boils down to is simply this: oil company profits.

The supply of tar sands is very large. And, oil companies reason, if they can get tar sands oil to the international market, where prices have ranged between 100 and 120 dollars per barrel of crude oil, they can make a pretty decent return on their massive investments in exploiting Canada’s tar sands.

The centerpiece of such a push for exploitation is the controversial Keystone XL pipeline. Without such a pipeline in place, oil companies would be forced to ship tar sands via rail or truck in order to reach international markets. And such shipping would increase costs as much as 20 dollars per barrel, wiping out much of the profit potential for tar sands.

The reason is that the oil is very expensive to extract. All the mining, baking and crushing necessary to remove and process bitumen results in marginal costs for tar sands oil that are now higher, in some cases, than 95 dollars per barrel. In the North American market, where bidding for tar sands oil is about 60 dollars per barrel, a decent portion of the tar sands resource is too expensive to extract. So oil companies are desperate for a low cost means of transport — the Keystone XL pipeline– to bring their tar-oil the Gulf Coast where it can easily access international markets.

Now, should the pipeline go through, oil companies have a rational means to continue expanding dirty, dangerous, and expensive tar sands production indefinitely. If prices remain high — 100 to 120 dollars per barrel or more — tar sands production from Alberta could  rapidly increase over the coming decades. But, without the pipeline, many projects become uneconomical and would be put on hold or shut down indefinitely. And this would mean that a substantial portion of tar sands ends up remaining in the ground — where it can’t make any money for oil companies, and where it also can’t do further harm to the world’s climate.

Now oil companies are very attached to their profits, no matter how much harm such profits may ultimately cause. And the prospect of much of their potential future profits languishing in the ground beneath Alberta is not an appealing prospect for those already invested in tar sands. The result has been a major lobbying effort by oil companies for the US government to allow Keystone to go through. And, now, it appears that much of US government has been swayed to the oil industry’s way of thinking. In fact, without a broad and popular public protest against the pipeline, the project would, likely, have already been completed and the world shackled to yet another climatologically damaging energy resource.

In the final industry and government push to complete the pipeline, the Department of State has produced an inaccurate study in support of approving the pipeline, making the false claim that failure to approve the pipeline would have no impact on tar sands production. Even to the superficial observer, such claims should seem ludicrous, as the industry, itself, has stated in various reports that Keystone is necessary for increasing flows of tar sands oil. In fact, such a pipeline, as the oil companies intend, would pave the way for the production of ever-increasing volumes of the dirty and expensive Alberta oil. Instead, the misleading report seems to attempt to remove a rationale for public opposition to a pipeline that will, indeed, dramatically increase the delivery to market of dirty and climatologically harmful tar.

A Conflict for Our Age

We have entered an age of expensive, difficult to extract, highly polluting, and less useful oil. We have also entered an age of increasingly dangerous impacts from human caused climate change. Oil companies, whose goal it is to convince us to use every drop of crude they can extract will do everything in their power to increase the economic reach of expensive and dirty fuels, extending as far into the future as possible the lifespan of those fuels.

But for us to have much hope for a stable climate and a prosperous future, we must do all we can to ensure such dirty, expensive and climatologically harmful fuels remain in the ground. And so the effort to oppose the Keystone XL pipeline is a moral one. One in which we make the choice for responsibly working for greater access to sustainable energy sources and against fuels that will ultimately wreck our civilization’s future.

For even as the oil, gas and coal companies are struggling to access ever more expensive and harmful energy sources, they also seek to suppress the alternatives. Wind, solar, biofuels, rapidly increasing efficiency, and vehicle to grid technology all represent alternative choices to dirty, dangerous and depleting fossil fuels. And it is a replacement of fossil fuels with these new energy systems which must happen if we are to have a hope of economic prosperity without a combination of ever-worsening climate impacts and ever-increasing and more volatile energy prices.

So the fight over the Keystone XL pipeline is a fight over which future we chose. On the one hand we have a new energy era reliant on the expansion of a fuel source that will do serious, ongoing harm to the climate. On the other a new beginning. One that turns away from the dirty fuel sources and seeks the energies of a new generation. Energy sources that will begin to enable the healing of our climate and the building of a truly sustainable and prosperous society. Not one shackled to the uncertainties of limited and climatologically harmful fuel supplies. But a future based on a solid foundation of predictable outcomes.

That’s what’s at stake here. Rational hope for dealing with the double challenges of climate change and resource depletion. Or a continuation down the path toward ruin. And anyone saying anything different is simply spreading misinformation.

Articles worth reading:

http://www.nytimes.com/2013/03/11/opinion/when-to-say-no-to-the-keystone-xl.html?_r=0

http://thinkprogress.org/climate/2013/03/11/1697831/march-11-news-nyt-editorial-makes-the-climate-case-against-keystone/

http://www.huffingtonpost.com/anthony-swift/rail-is-not-an-alternativ_b_2838058.html

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