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Wednesday, August 06, 2008

The Peak Oil Crisis: The Blackouts Spread

by Tom Whipple

Falls Church News-Press (July 16 2008)

Of the 266 distinct nations or entities on the world today, nearly 100 are now reporting continuing energy shortages, mostly in the form of inadequate electricity supply, but in a growing number of cases, shortages of liquid fuels and natural gas. The actual number of countries affected is probably well over 100 but there are dozens of isolated island-states scattered around the world that are rarely heard from and are almost certainly suffering in silence while waiting for the next oil tanker to come in.

The majority of these energy-short states are small, poor and play only a minor role in world trade. While we should feel sorry for the plight of their inhabitants who are, or shortly will be, enduring severe hardships from greatly reduced supplies of electricity, water, food and use of motor transport, the impact of their problems on the better-off OECD world is likely to be minimal for a while.

Shortages, however, are not confined to small, poor states, but, in an increasing number of cases, are appearing in large, relatively well-off and active states on which the OECD world of North America, Europe and parts of Asia are very dependent. Several of the countries having energy problems are actually oil exporting states that, for one reason or another, are not able to turn their increasing oil wealth into smoothly functioning shortage-free economies. Unfortunately, several major countries appear to be on the path to an energy shortage-induced economic and perhaps political collapse within the foreseeable future which obviously will have serious consequences for us all.

Currently, the most serious situations appear to be in Pakistan and Bangladesh. Both are nations with populations in excess of 150 million people that are ensnared in devastating power shortages that have destroyed their export industries. Both are facing water and agricultural problems that threaten their food supplies. Liquid fuels are running short and reductions in exports threaten their ability to import oil and natural gas. It was recently revealed that the Saudis already are forgiving $6 billion of Pakistan's $12 billion annual oil import bill.

On top of this, Pakistan has nuclear weapons and its strategic location is vital to the course of the insurgency in Afghanistan. Worsening blackouts, the liquid fuels shortage and probably the food situation are likely to lead to serious political instability before the year is out.

The next important pair of countries in terms of their impact on western economies is China and India, and although their situations are nowhere near as serious as the problems in Pakistan and Bangladesh, both are beginning to suffer from electricity shortages which will impact economic growth. China, which now has a shortfall of around four percent of its normal electricity production, is compensating by cutting back on production of aluminum and zinc which consume prodigious quantities of electric power. The recent earthquake has given Beijing pause in its ambitious plans to expand hydro and nuclear power production. If China cannot increase coal production rapidly enough to keep up electricity generation for its rapidly expanding economy, it is likely to increase imports of coal and oil keeping pressure on world prices.

So far there is no indication of an unusually large increase in Chinese oil imports as there was during the power shortage four years ago. The world price of diesel is simply too expensive to be used to generate electricity for industrial production these days.

India's energy shortages are more serious than China's.

Its nuclear power plants are failing, hydro-power from the Himalayas is drying up due to global warming, and the costs of imported fuels are soaring. Over 85 percent of India's oil must be imported and coupled with the subsidies of oil prices the increasing costs are taking a heavy toll on the state budget. Although the situation in India is not yet as bad as in Pakistan, blackouts and liquid fuel shortages are being reported almost every day somewhere in the country. There is no end in sight to this situation and likelihood of an economic slowdown, coupled with water and food shortages, is increasing.

Several members of OPEC are having electricity and/or liquid shortages. In Nigeria, and Iraq where there are active insurgencies that have damaged the infrastructure, the shortages are endemic. Indonesia, which is just about out of OPEC due to lack of exportable oil, is beginning to face frequent power blackouts and fuel shortages. Even Venezuela and Iran have occasional electricity and fuel supply problems as they are trying to do without substantial foreign technical assistance. In Mexico, demand for gasoline has outrun refining capacity and the country is forced to rely on imports. There are now daily diesel shortages along the border as Americans cross over to fill-up on subsidized half-priced Mexican fuel.

Aside from the major oil-producing states, most countries in Africa, Latin America and Central Asia are enduring some form of energy shortages. In a number of important mineral producing countries such as South Africa, Chile and Zambia, they have already reduced production due to shortages of electricity and diesel fuel.

The global wave of blackouts and shortages is almost certain to get worse. Although most governments have announced optimistic plans to increase electricity production and bring oil to market within the next few months or years, these are almost certain to fail. The cost of building electrical generation capacity is soaring and finding affordable fuel unlikely.

In the OECD world, the effects of these shortages is likely to be felt in the form of much higher prices for declining exports from the energy-poor. For the citizens of the energy-poor world, life is going to become much harder very soon as electric lights, computers, motor transport, refrigeration, fresh water and imported anything become scarcer and scarcer.

Bill Totten


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