Friday, November 9, 2007

Fit to Print

Only several months ago - on March 5, 2007 - the New York Times carried a story in which it summarily dismissed the seriousness of peak oil. Writing about the new technologies that promised new life to old U.S. oil wells, the author first quoted a dismissal of the idea that the world was facing energy shortages by oil industry shill Daniel Yergin, and then wrote that "there is still a minority view, held largely by a small band of retired petroleum geologists and some members of Congress, that oil production has peaked, but the theory has been fading."

What a difference six months makes. On the front page of today's Times, a somewhat different story was being told. This story speaks of the impending "third energy shock of this generation," albeit one that is coming not mainly from political events, but from rising demand and constrained supplies. The article - continuing the Times insistence that it's not really a supply problem - blames rising demand for the difficulties that modern civilization faces. But, growing demand would not be a problem if supply were able to keep pace. One person quoted - an oil industry corporate board member - notes that one can't easily disassociate supply considerations from growing demand: “The concern today is over how will the energy sector meet the anticipated growth in demand over the longer term,” said Linda Z. Cook, a board member of Royal Dutch Shell, the big oil company. “Energy demand is increasing at a rate we’ve not seen before. On the supply side, we’re seeing it is struggling to keep up. That’s the energy challenge.” Economics 101 teaches us that if demand is high, supply will increase to meet that demand. The fact that it is now universally acknowledged that supply will not be able to keep pace suggests that the theory of Economics 101 is ceding to the reality of peaking oil production.

Directly above the fold of this very story, the Times carried an article about Bernanke's Congressional testimony, which - in contrast to many such instances - was quite frank in a bleak assessment about the U.S. economy. The primary reason he attributed for the cooling economy was the continued fallout from the sub-prime mortgage collapse, but Bernanke also noted the difficulty that rising oil prices also posed: “further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity.” This "upward pressure" on inflation will make it particularly difficult for the Fed to cut interest rates any further, threatening a (deeper) recession if they do not cut, or (further) inflation if they do.

The stock market was apparently listening, as we've seen a significant pullback in the past several days on the order of around 500 points. That's about 4% for the Dow and a six and a half percent drop for the Nasdaq. Some of our leading investment advisers are loaded for bear, even predicting a drop in the stock market of as much as 50-60% once a vicious cycle begins to build on itself. Indeed, there are signals that further cutting by the Fed will not prevent the economy from falling into a recession now that "consumers" have begun to cut back on their spending. Even if the financial industry can be shored up - and the high finance boys are lamenting the likelihood of smaller bonuses, if any, this holiday season - Joe Six-pack will be cutting back on the Christmas shopping. There's simply less disposable income when you're paying more for oil and everything that comes from oil, particularly food. And - in an ominous sign of what our peak oil future will entail - it will be harder for us to "move around the country" now that airlines are looking to cancel hundreds of flights due to the rising cost of fuel. We've been so busy anticipating our future of "globalization" that we've been missing the true markers of the wave of the future.

Conservatives like to complain that the "mainstream media" has a liberal bias. I think this is right, but in a more profound sense than is often meant. The mainstream media has a profound interest in maintaining the current order of things, that is, the liberal order in which much can be tolerated given a backdrop of broad economic prosperity and growth. In this sense, the mainstream media are really no different from our political elites on the Left and the Right alike: they are educated at the same schools (like mine, where "globalization" is the buzzword) and expect the same future. Even if they recognized the gravity of our historical moment, the last thing they would want to do is upset the apple cart, not to mention the orchard owners and the apple-pickers.

Further, the nature of journalism means that reporters move from one story to the next without wanting nor needing to bother to see the connection between them. "Stories" are just that: discrete and passing instances without necessary connection to what has preceded and without necessary implication for what will follow. The very word "story," as it's used by journalists, never fails to annoy me. A story is simply something that attracts - or distracts - our attention today, with no promise or even likelihood that it will do so tomorrow. Is ubiquitous use recalls Neil Postman's observation of the significance of the telecaster's transition line, "and now this...," - meaning whatever "story" would follow bore no relation to what had preceded and would be given no context. "Story" in this sense is wholly unrelated to "history," a dissociation by modern journalism of a relationship that is more than merely etymological.

While our best newspapers offer us clues to the interconnections between much of what we are now witnessing, they wholly fail to put together the innumerable strands in an identifiable narrative that could be of actual use and import to citizens. They are especially silent regarding the moral dimension and connection between the depletion of our moral culture and the depletion of our physical world, and its even deeper connection to the modern philosophies that argued humanity could alter and conquer nature at will. One must look elsewhere - and be willing to read widely in sources across the political spectrum and in all sorts of tucked away places - that have a longer and at times deeper view.

For a better explanation of the connection between our encounter with peak oil and our political moment, I commend this "story" by Michael T. Klare whose discussion of "tough oil" I've previously linked. Not a story for a mainstream newspaper, given its more comprehensive vision, but serious news that is fit to print.

Klare insightfully points to the significance of the change of language by the Energy Department from "oil" to "liquids," suggesting that this is implicit recognition of the reality of peak oil by the Federal government. More fundamentally, Klare alerts us to the likelihood that we face a future of permanently constrained energy, of a weakened economy and depleted Treasury, and that for our elites, our last, best option for securing the only energy sources that remain - namely, foreign sources - will require us increasingly to rely upon our military advantage. Klare points out that there is a broad "Washington consensus" that a primary activity of the government will remain the use of American military power to protect and secure the flow of petroleum to our shores. This is a bipartisan stance, notwithstanding the jawboning of various Democratic candidates. Indeed, Klare points out, in spite of broad condemnations by Democrats of the war in Iraq, the Democratic front-runners (i.e., those who might actually have to govern) have all admitted that we will be remaining in Iraq for a long time to come. The reason is not - and never was - to ensure democracy in Iraq (any more than it was to pursue WMD) but because of the third largest oil reserves remaining in the world - a world in which the other reserves are increasingly in the hands of nations that don't like us.

Our leaders have the clarity of knowing that we don't have a choice if we want to continue to run the country as we've been doing - and that this is really what the American people want in the absence of a serious discussion of any alternative. Klare writes:

An awareness of this new "Washington consensus" on the need to protect overseas oil supplies with American troops helps explain many recent developments in Washington. Most significant, it illuminates the strategic stance adopted by President Bush in justifying his determination to retain a potent US force in Iraq -- and why the Democrats have found it so difficult to contest that stance....

Given this perspective, it is very hard for mainstream Democrats to challenge Bush when he says that an "enduring" US military presence is needed in Iraq or to change the Administration's current policy, barring a major military setback or some other unforeseen event. By the same token, it will be hard for the Democrats to avert a US attack on Iran if this can be portrayed as a necessary move to prevent Tehran from threatening the long-term safety of Persian Gulf oil supplies.

Nor can we anticipate a dramatic change in US policy in the Gulf region from the next administration, whether Democratic or Republican. If anything, we should expect an increase in the use of military force to protect the overseas flow of oil, as the threat level rises along with the need for new investment to avert even further reductions in global supplies.

Only an honest telling of where we are now will prevent this likely future from becoming to pass. Given the unwillingness of any of our political leaders to speak to the gravity of our situation and the need for us to change our behavior if we want to retain our republican liberties, one can't be sanguine about the likelihood of our avoiding ongoing future conflict and resource wars and the continued transformation of the nation into an effective Executive-branch empire, regardless of the party affiliation of future Presidents.

The only real alternative option? One too awful for Americans in general to contemplate:

"The safest and most morally defensible course is to repudiate any "consensus" calling for the use of force to protect overseas petroleum supplies and to strive to conserve what remains of the world's oil by using less of it."


Peter Y. Paik said...

I don't know if you've read Morris Berman's Dark Ages America, but Berman, who has taught at Catholic University, provides a convincing explanation for the inertia of our society and our political establishment in addressing the most serious problems. Berman points out that for all the talk about the US being a diverse society made up of many different nationalities and ethnic groups, there is an underlying homogeneity among whites, blacks, Latinos, and Asians with regard to their actual beliefs and aspirations. Pretty much everyone, regardless of their background, is a capitalist individualist "whose life is grounded in the ideology of an expanding market economy." The demands of those who engage in identity politics are in the end demands for a bigger share of the economic pie that is not supposed to diminish. Perhaps we are becoming entangled in a kind of reversal of the revolutionary situation - given that the cohesion of our society depends upon the illusion of infinite progress, war abroad might come to appear as the remedy for avoiding war at home. Of course, those who set out to practice such a dark art can end up with the worst of scenarios - war at home and abroad. Kind of like Athens after the disaster in Sicily.

Anonymous said...

Really good post, covers lots of ground.

The "tough oil" issue is, to my mind, the most likely future. Sadly most of this oil for the next ten years is not tough due to geology as much as it is due to political issues.

For example, all these Russian "tough" oil projects would be nice and profitable if they were just in a place you could do business without fear. Cut BP or ExMob loose in Russia or the Middle East with politics like America and we could kick peak oil down the road for decade or two. But this is not the reality on the ground, and when peak oil hits, in my view pretty soon, it is going to be too late to get our rigs in place - even if the politics suddenly work out, and they won't. So the price will skyrocket.

Right now we are drilling with a lot of junk, with every rig possible, no matter how crappy (many should be in the junkyard) groaning away. We can't get production up very quickly; it simply takes time to build big rigs, train people, build logging tools. And no oil company is going to do all this rampup when there is no proof they will be doing the work in Saudi/Russia. Sadly Russia and the Middle East simply cannot do oil well or quickly by themselves. State run oil companies don't have the technology or grit to get the job done like the free market. This means the West is held hostage to Soviet-style economics.

And I don't think we can do much about it. Here is where I disagree with you. We can't really invade Saudi or Russia, and they are the only games in town. Iraq? Iran? This is chump change for the production needed. Why fight over it? It's Saudi or bust.

What really scares me is the "no ceiling" concept Simmon's believes in, that we could see $300+ bbl and people still wouldn't change where they live and what they drive, and we would see reserves keep draining. He points to Europe, where people still buy gas with abandon at $300/bbl prices (taxed). I think we can do fine if we just respond to the price and change our lifestyle - then the market will work. Otherwise, we will see serious times with rationing, etc.