Bill Totten's Weblog

Saturday, July 28, 2007

The world has two energy crises but no real answers

by Gideon Rachman

Financial Times (July 09 2007)

How very shocking! Brendan Nelson, Australia's defence minister, has caused sharp intakes of breath by saying something that is obviously true. He remarked last week that the Middle East was "an important supplier of energy, oil in particular" and that - as a result - people "need to think what would happen if there were a premature withdrawal from Iraq".

Mr Nelson did not say that Iraq was a "war for oil". He merely noted that there was a lot of the stuff sitting under the ground there - and that this mattered.

This is not news. If you look at the biggest geopolitical questions facing the world, energy is at the heart of most of them.

The world is, in fact, facing two energy crises. The first is rooted in scarcity and traditional power politics. It involves the struggle by the world's largest and most energy-hungry economies to get hold of the natural resources they need. Just yesterday the International Energy Agency warned {1} that the world oil market would be "extremely tight" over the next five years. Demands from China and other emerging economies are rising. But Mary Kaldor - co-author of a new book called Oil Wars (Pluto, 2007) - points out the struggle to find new oil is a familiar sort of conflict, reminiscent of the 19th century "great game" or earlier imperial clashes.

The second energy crisis is new. It is driven by climate change. It demands international co-operation rather than competition. While the first crisis leads politicians and businessmen to search out ever more oil and gas, the second demands that they radically reduce their economies' dependence on hydrocarbons.

Politicians find themselves pulled in two directions. Tony Blair, the former UK prime minister, spent much of his last few months in office trying to promote an international agreement on climate change. But he also thinks that one of his most important - if least heralded - achievements was to secure a long-term deal for Britain on gas supplies from Norway.

In theory, the two energy crises could point in the same direction. The development of alternative, "clean" energies would reduce dependence on oil and gas. It is also crucial to any effort to cut emissions of carbon dioxide. The trouble is that there is little sign that alternative energy can be developed fast enough to rein in demand for oil and gas. Mr Blair is a firm believer in the need to develop nuclear energy. But even this policy - controversial as it is - seems unlikely to fill the gap. One report published last week argued that four new nuclear reactors a month would have to be built from now to 2070 to make any difference to global carbon dioxide emissions (Too Hot to Handle? The Future of Civil Nuclear Power, Oxford Research Group) {2}.

But while the debate about global warming continues to generate more hot air than real change, the pursuit of new sources of oil and gas is now central to the foreign policies of all the world's biggest powers.

China's controversial foray into Africa is its first real effort to build power and influence outside Asia. The search for oil is fundamental to this policy - in particular, China's controversial relationship with the government of Sudan. At home, China is opening a new coal-fired power station every week, to the despair of global-warming activists.

Energy is also now probably the most important - and divisive - issue facing the European Union. Tensions between Poland and Germany have been raised by a Russo-German plan to build a new gas pipeline under the Baltic Sea. But while the Germans are placing their bets on securing long-term supplies from Russia, some other EU countries are scrambling to diversify their sources of supply - alarmed by the prospect that Russia could threaten to turn off the gas, as it did with Ukraine in 2006. Britain has its deal with Norway. The Balts and the Finns are constructing big new nuclear power stations.

Few in Europe will be comforted to hear Alexander Medvedev of Gazprom {3}, the giant Russian energy company, remark matter-of-factly that: "In 25 years' time, there will be only three major suppliers of natural gas - Russia, Iran and Qatar". Meanwhile the Russian economy is growing fast and Russian foreign policy is becoming more assertive - fuelled by a booming energy industry.

The US has its own energy dilemma. It accounts for 25 per cent of the world's oil consumption, but around nine per cent of world oil production and two per cent of world oil reserves. America's demand for hydrocarbons keeps rising and the economy is still utterly dependent on the stuff - 97 per cent of the US transport system is fuelled by oil.

The Iraq war has done nothing to ease this problem. If it was a "war for oil", it was singularly unsuccessful. Just before the invasion, oil was trading at around $30 a barrel. On Monday it hit an eleven-month high of more than $76 a barrel.

President George W Bush announced last year that he intended to end his nation's "addiction to oil". Billions are being poured into research on alternative energy.

All of this is reminiscent of the last big energy panic in the 1970s. In 1973, President Richard Nixon launched "Project Independence" - to free the US of reliance on foreign energy. Jimmy Carter called energy independence "the moral equivalent of war" - and said that by 2000 the US should get twenty per cent of its energy from solar power. Since then US oil consumption has risen by fifteen per cent and it is projected to grow by another 24 per cent by 2025. Solar power currently accounts for less than one per cent of US energy needs.

The US government is doubtless sincere in its protestations that it means to kick the oil habit. But, like many an addict, it has said similar things before - and the addiction has only grown worse. Now the US is competing for energy supplies with new and hungry addicts. Chinese oil consumption is currently growing by more than seven per cent a year.

Climate change has only increased the moral and strategic case for alternative energy. Speaking at the London School of Economics last week, Sir Nicholas Stern - author of an influential report on climate change - struggled to sound optimistic. He admitted that finding and deploying alternative energy fast enough to avoid climate disaster would be very difficult, but added: "It is possible. And if it's not possible, we're in real trouble." I would say we're in real trouble.






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Bill Totten


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