Saturday, October 28, 2006

Thinking About the Issues of Tighter Oil Supplies

In the last three years, oil producers have experienced growing difficulty keeping up with global demand; this is raising a number of issues that are still not fully appreciated. We knew thirty years ago that we needed to start thinking about alternatives to oil but not much progress has been made and much time has been lost. I can't emphasize enough that the window for dealing with the issues is growing narrower by the month. And it's important to note that President Bush's habit of seeing the world in black and white doesn't work very well for our energy problems, the global consequences of oil politics, global warming and the need to find ways to gear up for alternative energy.

Oil supplies might loosen from time to time in the next five years or so but it isn't always because more oil has been found or produced, nor because conservation efforts in the US might be having an effect. Sometimes, it's because poor countries are being forced out of the market. Abdoulaye Wade, the president of Senegal, has an article in The Washington Post about oil and energy:
In sub-Saharan Africa, in particular, the oil crisis is not a vexing "cost crunch"; it is an unfolding catastrophe that could set back efforts to reduce poverty and promote economic development for years.

In the United States, working men and women fretted when gas prices topped $3 a gallon this year. Here in the capital of Senegal, gasoline costs $5.62 a gallon. Unlike the United States, we are not a rich nation. Imagine having to pay such an exorbitant price to fill up your tank -- but in a country where per capita income is $849 a year. Senegal's electrical utility has been forced to turn off the lights throughout the nation for long periods every day, a crippling problem that could be eased if energy cost less.

The math is not hard to do. Everywhere in West Africa, governments are being forced to reallocate lifeline budget subsidies to counterbalance unprecedented oil and electricity prices. Senegal's direct oil subsidies to domestic consumers have increased fivefold since 2002. Niger's fuel costs have quadrupled. Even in Africa's oil-producing nations, windfall profits from oil have failed to reduce poverty. Per capita income in Nigeria is still $1,400 a year.

If the price of crude oil reaches $100 a barrel within the next year -- as some analysts predict -- a pan-African disaster will be upon us. Richer, oil-producing countries in Africa risk being inundated with mass migrations of people seeking survival.

By draining government treasuries, the soaring price of oil in West African nations has made it all but impossible to proceed with antipoverty efforts, and it is hindering work to increase access to public health services...

I don't know much about Abdoulaye Wade, but I know the issues he is talking about are quite real. Wade goes on to suggest things that Africa can do to relieve some of the problems and things that perhaps the west can do. But the thing to keep in mind is that when prices drop in the US, it's likely that it's other people in the world who are tightening their belts. The more oil we insist on consuming during this era of tight supplies, the more problems that will emerge elsewhere. No one can doubt the ingenuity of Americans and how hardworking most Americans are, but we are a heavyweight in the world economy and we need to think more seriously about what we're doing. On the other hand, if there are solutions out there, we are the country most likely to provide them.

Maybe the oil companies are beginning to move in that direction, though their public relations departments have always been quick to pick up the prevailing social winds to improve their image. But even oil executives, and their investors, need to start thinking more seriously about where we're going. Here's a story from The Oregonian by Ted Sickenger who has interviewed the president of Shell Oil:
It's finally come to this: Even oil executives are sounding alarms about U.S. oil consumption.

"The ease with which we all lived in the last 50 years, with cheap energy, is coming to a close," John Hofmeister, president of Shell Oil Co., told a City Club luncheon crowd Friday in Portland. "The next 50 years cannot be like the last 50 years."

The oil demand-and-supply equation, Hofmeister said, now constantly flirts with crisis. Americans, he said, need to develop a sense of privilege rather than entitlement when it comes to energy use.

At the helm of Houston-based Shell Oil since March 2005, Hofmeister aims to take that message to 50 cities around the country by the end of 2007. In his talks, he is promoting a panoply of supply-side measures, from expanding access to oil fields that are off-limits today to developing alternative and renewable energy resources. Shell, he said, also is eager to persuade consumers to conserve.

Hofmeister spent a few minutes answering questions for The Oregonian after his speech. Here are excerpts. Questions and answers have been edited for length and clarity.

Do you drive a hybrid?

No. Not presently.

You mentioned your industry's credibility problem. Many of our readers won't think an executive from big oil has much credibility when it comes to energy security, alternative fuels, foreign policy, global warming. You're speaking to audiences in 50 cities. How do you deal with that?

What Shell is trying to demonstrate is that it cares by being physically present in the markets that we serve. We have a story that needs to be told. We want to hear the stories that others have to tell. If we have a reputation or a credibility issue in Portland, we want to deal with it head on. I hope people will give us the opportunity to hear and be heard.

To me, the above sounds like a slight tilt towards reality but otherwise it feels too much like a public relations effort. I notice by the way that the use of the words 'entitlement' and 'privilege' can mean one thing to Democrats and another thing to Republicans though that may just be a clumsy handling of language. And I suspect Hofmeister may be more interested in developing more oil fields than in developing more alternative energy. But I hope Mr. Hofmeister proves me wrong.

I appreciate the enormous technical skills of oil engineers and workers; and their skills will grow increasingly important as oil becomes more difficult to produce, but it's the broader policies of their companies that concern me. I believe the role of corporations can be important and useful, but we have left our energy future almost entirely in the hands of the oil companies who have been major donors to the Republican Party. We as a nation cannot afford to let oil companies have a monopoly on our future (or even coal companies, for that matter). We need a partnership between the government, the oil companies, the coal companies and a whole new slate of energy research and development companies who are not directly tied to oil or coal. Energy independence may not just mean independence from foreign oil, it may also mean independence from the dominance of oil companies and their agenda.

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