Government Policy to Reduce Global Warming

energy dependence

The prospect of alternative energy development leading to energy independence makes for a comforting view of the future. But we tend to ignore the perils of our dependence — right here, right now. Part I of a series looks at our hazardous reliance on a troublesome world .

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About Those 68 Million Acres:

How Politicians Keep Us Energy Dependent to Get Votes

Those who want to see through the political posturing and understand better why our energy security depends on countries like Saudi Arabia, Venezuela and Russia, should ponder the following story.
     Jim McTague, of Dow Jones, described this situation in a recent issue of Barrons.
     A geological formation located 25 miles off Pensacola contains a lot of natural gas — enough to power about a million homes for 30 years. It is called Destin Dome and it is in the Gulf of Mexico. It is also among the 68 million acres that opponents of offshore drilling claim are "not being drilled" as a way to justify retaining the ban on more leasing and drilling. What follows may help readers appreciate how difficult it is to win approval to drill offshore and illustrate how one-sided these claims against Big Oil might be.
     We're not talking only about Democrats. Republicans, including George W. Bush, his father George H.W. Bush, and brother Jeb have been no less involved than those of the other party in blocking offshore energy production in return for voter support, and, as a consequence, damaging our nation's energy security.
     Surveys now reveal that the public, witnessing current gasoline prices, favors drilling. This may explain John McCain's sudden interest in offshore exploration. Barack Obama, in a gesture to single-issue environmentalists, describes expanded undersea exploration as an election tactic and a threat to our beaches. with large residential gas demands are New York, Michigan and Ohio, all key players in the national election. And Florida, which has thrown major hurdles in front of coastal drilling, ranks second, behind Texas, in the use of natural gas to generate electricity. But, all of Florida's gas is shipped from other states, despite the massive reserves lying just off its coast.
     Drilling in the Gulf of Mexico has always been contentious. In opposition are the tourism, real estate and environmental businesses. In favor are those bad guys from Big Oil. It was 1978, five years after the oil embargo, when Congress amended the Outer Continental Shelf Lands Act giving states, local governments and even environmental groups more freedom to challenge drilling in Federal waters off their coasts, and they did just that.
     James Watt, President Reagan’s Interior Secretary, tried to reverse this restrictive trend in 1981 by proposing that almost the entire Outer Continental Shelf be opened to drilling. Coastal communities squealed like stuck pigs. Also, California’s congressional delegation slipped a provision into an appropriations bill that same year placing a moratorium on drilling off that state's shores. Later on, Congress enacted separate but similar moratoriums for Florida, New Jersey, and North Carolina.
And Now About an Area That Was Allowed for Drilling      Those bans didn’t cover Destin Dome, which was first leased in 1984. Chevron and partners Conoco and Murphy Exploration & Production drilled three exploratory wells there in 1987, 1989 and 1995. They found 2.6 trillion cubic feet of natural gas, but to go into production, the three partners needed Federal and state approval.
     Chevron submitted a development plan to the state and the Interior Department in1996 — not an auspicious time for offshore drillers. George H.W. Bush in 1990 had placed a temporary moratorium on new drilling off south Florida, fulfilling a campaign promise to voters from that state. Then, in 1995, the Clinton administration ruled against new lease sales, while the state's Congressional team, representing both parties, successfully supported another moratorium on new drilling to replace one that had expired.
     Chevron had proposed drilling 12 to 21 gas wells. Florida bureaucrats reviewed it for two years before denying the application. Chevron appealed to the Dept of Commerce, which can overturn state decisions. Reluctant to upset anyone, Commerce simply stalled. Under the law, there is no deadline on appeals, so Chevron finally sued in 2000, claiming it was denied a timely and fair review of its application. Clinton's term ended and Bush II came in. His Commerce Department delayed the matter, as well.
68 Million? Except for Those in Florida's Back Yard      Meanwhile, Bush met with Florida's then governor — brother Jeb — a man long opposed to offshore drilling. They agreed to have the Federal Government buy back the Chevron's leases for $115 million and place a moratorium on drilling at Destin Dome until 2011. There are now 140 actual leased tracts there that cannot be drilled, according to Lisa Flavin, a senior policy advisor at the American Petroleum Institute in Washington.
     Recently, when President Bush came out in favor drilling on the Outer Continental Shelf, Democrats accused him of wishing to give more land to Big Oil. Rep. Ed Markey of Massachusetts howled that “Oil companies already own 68 million acres of drill-able land and sea, which is the size of Georgia and Illinois combined, but they’re not producing there...They should use it or lose it". But those acres include Destin Dome.
     Chevron took the lease refund it received to help finance a $12 billion project in Angola to produce liquefied natural gas for shipment to the U.S. Ironically, a major gas pipeline between Texas and Tampa runs right by the Destin Dome.
     These issues are never as clear cut as the extremists would have us believe.
      - Douglas Ayer

Time for Another Look at ANWR?

Although John McCain has ruled it out in the June speech that said we should drill offshore, a chorus arose once again to drill in the Arctic National Wildlife Refuge (ANWR), with George W Bush leading the song.
     Columnist George Will laments that "One million barrels is what might today be flowing from ANWR if in 1995 President Clinton had not vetoed legislation to permit drilling there". This does not square with the economics of the time. At the then $16 nominal price of a barrel of oil, would anyone have drilled?
     Those economics gave ANWR critics an argument. Oil that could be recovered economically at such prices
worth infringing on a wildlife reserve blessedly free of humanity's contamination for so little gain.
The Economics Have Changed     The economics are as follows. A 1998 survey by the U.S. Geological Survey determined that at $24 a barrel (the price had risen since the 1995 veto), there was a 95% chance that 2 billion barrels or more could be economically recovered, which works out to something less than 500,000 barrels a day, and that for only 10 years. That equates to the 3% that has been regularly bandied about.
     But the economics change significantly at today's prices. The same survey found a 95% chance that 4.3 billion barrels or more are technically recoverable if price is not a factor, and the then unimaginable $144 a barrel now would cover any tab. The percentage of daily U.S. needs that ANWR could provide now jumps accordingly. It is this upward revision that President Bush probably assumes when he speaks of 1 million barrels a day from ANWR – about 5% of the nation's current needs.
     Proponents point to greatly improved exploration technique. Better seismic technology and high resolution images of the geology would pinpoint oil-bearing structures, serving to limit a sprawl of dry holes. More important still is directional drilling, which enables a rig to tunnel horizontally, snaking drill pipe underground for considerable distances (a rig in China holds the record of 7 miles). This capability sharply reduces a drilling platform's footprint on the land.
     Add to that the claims of greater safety and the case for drilling in ANWR has undeniably improved.
     Those opposed distrust the high pressure sales pitch. It will be only "one-sixth the size of Washington's Dulles Airport", one commentator assures us; 1/7th the size of Manhattan Island says another. Opponents say this overlooks the sprawl of infrastructure: living quarters, port facilities, airstrips, etc. The refuge embraces 19 million acres. Congress was left to decide the fate of the so-called 1002 area, which embraces 1.5 to 1.9 million acres. That is the area under discussion. The idea that the "footprint" would involve no more than 2,000 acres of this area was lofted by Gale Norton, Bush's first Interior Secretary. It refers to the actual "surface acreage covered by production and support facilities." But this is deceptively defined; if a pipeline snakes across the landscape on a series of posts, only the land occupied by the posts is covered. And roads — which will crisscross the area because the oil is spread out in many different pools, and not on one place — are not counted at all. In short, to say this will affect only 2,000 acres is like counting only the greens on a golf course. Any serious operation up there will create a significant spiderweb of infrastructure, as well as the bisecting roads and pipelines to hook into Prudhoe Bay's delivery system less than 100 miles to the west.
     So, acknowledging that drilling in ANWR will have a greater impact than advocates admit, the question is whether it is nonetheless worth it, now that, at today's oil prices, it would provide a larger perecentage of U.S. needs.
      - Stephen Wilson and Robert Semple, Jr

Oil Prices Take Off:

Is $4.00 Gas on the Way Again?

    Click to return to beginning
tax or a per gallon price floor would put an end to wild price fluctuations — from $147/bbl in July of last year to the $35 low six months later — but our politicians do not have the spine to even speak of such legislation. So the question is whether oil prices will settle at these levels or fall again. More on that later.
Blaming Speculators Is Good Politics      What’s causing the price swings? Politicians want to tell us that speculators are at it again. After all, there hasn’t been a sudden surge in demand. Americans, who consume a quarter of the world’s daily oil output, have been driving less. The worldwide economic decline has slowed China’s rising consumption. Inventories are at capacity with importers hiring tankers just to store the excess. And while OPEC has restrained production somewhat more (which has the effect of causing prices to be bid up), these trends do not adequately explain a doubling of price in just under six months.
     Traders argue that with crude oil futures contracts trading every day that represent 500 million barrels (in a world that consumes 86 million a day), it is too liquid a market for speculators to have a lasting effect. A given contract trades again and again and is repeatedly settled in cash, well before the physical delivery date of the oil. A rising price simply means that traders are betting that demand will cause the future price to rise.
     One belief holds that some of the blame belongs to hedge funds and institutional investors that, when the stock market plunged last summer, migrated to commodities. Investors in stocks almost entirely trade shares with one another without effect on the operations of the companies themselves. Oil futures are different; they do affect the underlying asset. When buy and hold investors buy contracts, it has the effect of hoarding the stuff, forcing those in need of delivery to bid up

prices to get it — or so goes the theory.
     But all of this begs the real question: Will oil prices — and therefore gasoline and diesel prices — keep rising? Will we return to $147 a barrel and $4.00-plus a gallon — or higher?
     The unprecedented plunge in oil prices in the second half of last year has caused a worldwide cutback in exploration and field development. The “easy” oil has long since been extracted and oil companies are reluctant to go after costly, inaccessible discoveries in the face of such price volatility. A simple index is that drilling rigs in use are running 32% below last year. Moreover, there has been underinvestment in such equipment during the decades when oil prices were low, and there is a shortage of geologists and petroleum engineers to figure out where to sink the drill bits.
     The Saudis have completed a $70 billion investment that will add 2.5 million barrels a day with more to come, but elsewhere are many trouble spots. Militants attack rigs and pipelines in Nigeria. Both Mexico and Venezuela fund their governments with money siphoned away from oil production investment. Venezuelan and Russian expropriation of foreign companies’ investments has sent their expertise packing. Petrobras’ giant finds off the coast of Brazil will take years to bring in and will probably be the world’s most costly oil.
     So the belief is that when the global economy rights itself and demand increases, especially from the rising auto-buying middle classes of China and India, the next few years will bring a return of high-priced oil and gasoline that is likely never to return to the lows of early 2009 and years past. At an OPEC summit this spring, the Economist magazine reported that “it was hard to find anyone who did not expect a price rise to rival the giddy leap to $147 a barrel last year”.
     And to think that just four months ago we were arguing for the need of a gas tax in this story.       - Stephen Wilson

Oil and Coal Information Campaign Ran Counter to Its Own Scientists

April 28, 2009
As long ago as 1995 scientists and technical experts, working at a coalition funded by industries that produced or relied on fossil fuels, reported that human emissions of greenhouse gases had a role in global warming. Yet the group, called the Global Climate Coalition, ignored its own scientists and embarked on a multi- million dollar campaign to sow doubt and confusion with the public.
     The propaganda campaign has long been known to climate and environmental organizations, but that the coalition ignored and refuted its own scientists only came to light when the New York Times received the leaked scientists’ report that had surfaced as part of a federal law suit. It contains unequivocal statements such as, “The scientific basis for the Greenhouse Effect and the potential impact of human emissions of greenhouse gases such as CO2 on climate is well established and cannot be denied.”
     That clearly was not what coalition backers wanted to hear. Much as the tobacco industry suppressed internal reports that found nicotine to be addictive, the Coalition adhered to its agenda of spreading disinformation. Instilling uncertainty was meant to blunt any outbreak of public demand for regulatory legislation. The Coalition’s leadership maintained that the contrarian sections were omitted from the report before they saw it.

     The Coalition was disbanded in 2002 as evidence of the human contribution to global warming overwhelmed its message. Of the oil, coal and automobile companies that backed the group, some carried on. In an attempt to make the public think that “the role of greenhouse gases in climate change is not well understood”, ExxonMobil on its own channeled some $16 million between 1998 and 2005 to a campaign of misinformation fed to a network of 43 advocacy organizations, according to a 2007 study by the Union of Concerned Scientists.
     Since then, the oil companies have adopted a different message, maintaining that they are in the forefront of alternative fuel development. “Beyond Petroleum” read ads for BP, for example. Chevron has long run a series saying we must cut back on oil consumption, signed by its CEO.
     But in fact, BP and other oil companies are drifting away, cutting back on renewable development and returning to oil, including dirty variants such as tar sands and shale. Royal Dutch Shell is dropping work in wind and solar and will pursue only biofuels, perhaps because it is the only form mandated for use by U.S. law. Their retrenchment runs counter to the Obama administration’s intent, a plan to spend $150 billion over the next ten years to develop alternatives that will cut back the use of fossil fuels.
      - Stephen Wilson

Reducing the Dollar Exodus:

Canada’s Tar Sands Boom Thankfully Fizzles Again

February 17, 2009
So much is made of Middle Eastern oil that most Americans would disbelieve anyone who told them that Canada is the largest source of our imports. We bring in 20% from our northern neighbor, 2/3rds more than from Saudi Arabia.
     But 40% of that derives from the tar sands of northern Alberta province. Canada prefers the more comely term “oil sands”, but the first description is a better fit. It is bitumen — highly viscous, black and sticky — that native people once used to seal their canoes, which explains why a Rand Corporation study found that oil from tar sands produces from 10 to 30 percent more carbon dioxide emissions when burned than does standard oil.
     That’s only the beginning of the environmental depredation. The National Resources Defense Council (NRDC) says that producing that oil results in triple the emissions of regular oil drilling. That because natural gas must be used to produce steam to separate the bitumen from sand, and is needed again to turn the bitumen into synthetic crude. At current production levels, that’s the greenhouse gas
equivalent, every day, of 12 million cars, and enough natural gas to heat six million homes — before the tar sand oil is burned as fuel.
     Water used to produce that steam winds up in tailing ponds that so far occupy 50 square kilometers. The toxic water kills unsuspecting migrating birds — 500 in an incident last April — and leakage — alleged by the NRDC and denied by Canada -- contaminates the water table and flows into streams. What’s more, tar sands are strip-mined. It takes two tons of oily sand to leach one barrel of oil, and woe betide any forests that stand in the way of the giant equipment. Just a few days ago the Billings Gazette in Montana reported a caravan headed north:
     “One load that is coming up from the port of Houston and began its passage through Montana on Wednesday is 20 feet wide, slightly more than 20 feet tall and 290 feet long. It has 90 tires on 24 axles and weighs 917,000 pounds - so heavy that two trucks are attached to the rear to help push it along.
     Even the social consequences of the boom are grim. Per capita it has drawn more than 12 times as many foreign workers as has the United States. Crack cocaine is easier to get in the work camps than a pizza, and prostitution is rife, says Andrew Nikiforuk in his book, “Tar Sands: Dirty Oil and the Future of the Continent”. Health problems in communities downriver cannot conclusively be ascribed to the
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tar sands, but physicians have encountered elevated levels of renal failure, lupus, hyperthyroidism and a particularly troubling rare bile duct cancer linked to industrial pollutants that is occurring at 400 times the rate of the general population.
     It is no surprise that environmentalists are therefore content to watch the economic slump ring down the curtain on a 5-year boom that had Canadians planning to ramp up production from today’s 1.2 million barrels daily to 3.5 million by
US Dept. of Energy

2015. It has already been called the largest capital project in the world, at $200 billion since 1996 if associated pipelines and refineries are counted.
     But the capital costs of newer developments need a world price of $60 to $70 a barrel to be able to compete, and today‘s $40 oil has brought such projects to a halt. Mirroring the economics of the U.S.’s huge shale deposits, Alberta has regularly gone through boom and bust cycles, unable profitably to exploit a resource estimated to yield 1.7 trillion barrels of oil. The boom got a big boost when Energy Secretary of the Bush administration, Spencer Abraham, signaled Canada that the U.S. would include Canadian tar sands in its census of North American oil reserves. But President Obama has a very different attitude toward the environment. A problem for Canada is that its pipelines snake straight south to the U.S.; it has limited means to deliver to other countries. Worries about a policy shift has caused the Canadian government to lobby the new administration for a “climate change pact” that would exempt Alberta’s tar sands from any ban on the grounds that favoring oil from a friendly nation is a security matter. The question for Obama is, What price security?
      - Stephen Wilson

Reducing the Dollar Exodus:

We're Stuck With Using Oil, So How About Shale?

While presidential candidates have sparred over whether to lift the moratorium on drilling offshore in Florida and California, or in ANWR, there has not been much public discussion or proposals to convert rich deposits of oil shale in Colorado, Utah and Wyoming. Although the technology is still unproved and these Western states are sensitive to environmental concerns, the potential oil reserves locked up in shale may far surpass the proven oil reserves of Saudi Arabia.
     According to one estimate, U.S. oil shale reserves total 1.5 trillion barrels of oil. This is more than five times Saudi Arabia’s known reserves. Since neither drilling offshore nor in Alaska will solve the immediate problems of oil supply and price, these sources, along with the potential from shale, could provide more energy independence, keeping jobs and profits in the United States, and slowing the drain of financial resources to import petroleum. The carbon footprint of shipping oil from distant lands to the U.S. market is substantial, but would be reduced by increased domestic production.
     From a global warming perspective, however, it means perpetuating our dependency on fossil fuels, which according to mainstream scientific opinion, is a major contributing factor to global warming. Under most scenarios, that process, if unchecked, will have serious repercussions around the world and will become our major national security issue.
     Meanwhile, however, our economy and infrastructure are so dependent on petroleum that, even under the rosiest predictions, adequate renewable fuels and alternative energy technology will not produce enough energy for many years to replace oil, natural gas or coal. Nor is it likely that Americans will adapt and change their habits or lifestyles fast enough to seriously curb our high consumption of energy. The current economic downturn also raises questions about whether the resources for research and development in energy technology will be available.
     In the interim, therefore, we will continue to consume fossil fuels and domestic sources, particularly oil shale, could provide the necessary energy to tide us over until new fuels, clean coal technology, renewable energy sources and even nuclear power come on line to replace our addiction to oil. From the perspective of global warming advocates, however, we may be running out of time to reduce carbon emissions in order slow the rise of global temperatures.
Early Shale Research Abandoned      During the 1970s presidents Ford and Carter funded the development of oil shale in the West. Although the federal government and Exxon invested substantial funds and several boomtowns emerged, little oil was recovered. Exxon closed down its shale operation in 1982. The process of retortion used to extract oil from shale, however, left so much toxic residue that it immediately entered the local water table.
     More recently, Shell has developed a process in which the shale is heated in the ground, leaching the oil from the rock. By inserting electric resistance heaters in holes drilled deep into the ground, the centuries-long natural process of compressing shale into oil is accelerated. Over 3-4 years, the heaters bring the subsurface temperatures to 650-700 degrees, slowly converting the shale into oil and gas, which can be brought to the surface by traditional methods.
     While this process is energy intensive, it produces 3.5 units of energy for every unit expended, according to Shell. This compares favorably with traditional methods of injecting carbon dioxide or steam to remove the last oil from old deposits and it produces a much lighter oil that requires less refining.
Water Table at Risk      As in previous methods to extract oil from
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shale, there is a great risk of polluting ground water. But Shell has adapted construction ice technology, used in mining, in which the ground water is frozen to isolate the area being heated, thereby preventing the seeping of toxic minerals into nearby water aquifers.
     However, there are major concerns that this process may not fully protect precious aquifers, especially the Ogallala aquifer, which is already facing threats of depletion for agricultural use. The Department of Energy also estimates that it will take 3 barrels of water to produce a barrel of oil from shale, though spokespersons for the shale industry counter that the water will be recycled.
     Water usage is also one of the main problems of increasing ethanol production, especially if corn production is expanded to drier
US Dept. of Energy

regions. Oil shale proponents point out that one acre of corn will produce 5 to 7 barrels of ethanol, while one acre of oil shale production will produce 100,000 to 1 million barrels. They also claim that oil shale production will have less impact on land use and wildlife than cultivating thousands of acres of dry land to grow corn. Since ethanol is being increasingly discredited as a viable way of producing domestic fuel -- it is an inadequate substitute for oil and has already raised the cost of food – there is no comparison.
Huge Costs, But Huge Potential      Considering that the technology is still unproved and the heating and freezing processes at 2,000 feet depths are problematic, the removal of oil from shale will require large amounts of capital. But given the prospect of accessing 1.5 trillion barrels of oil, or as much as a million barrels per acre, it could be extremely profitable. In fact, Shell estimates that it will be profitable at an oil price of $30 a barrel, far below today’s global price.
     Since the Bureau of Land Management owns 80% of the shale acreage in Colorado, there is no immediate land rush; the BLM has opened up 2 million acres for the study and harvesting of oil shale. Meanwhile, in spite of high oil prices, there is a one-year moratorium against using federal funds to write regulations for oil shale extraction.
     Eight companies have already filed applications for pilot programs to develop Colorado’s shale reserves on federal land, including Shell, Chevron, ExxonMobil and several local outfits. Since this is a very competitive industry, these companies are somewhat guarded in what they propose or how they will extract and refine oil locked up in shale.
     While extracting oil from shale has the potential to relieve our dependency on imported oil, as well as produce quantities of natural gas, there are legitimate concerns about the immediate impact on groundwater in areas already stressed by overuse. It will still mean consuming fossil fuels and, therefore, contributing to global warming, a looming crisis facing us and the rest of the world. Meanwhile, every effort should be made to promote the development of new fuels and technology, as well as expanding the use of existing renewable sources of energy and encouraging conservation.
      - Tony White

It's Not Just About Nuclear:

What Would Happen to the World's Oil Supply If Iran Were Attacked?

Americans do not think it wise to attack Iran. In a Gallup poll last November, 73% of Americans said the U.S. should use economic and diplomatic steps to halt Iran's nuclear program, whereas only 18% thought we should use military force.
     Nevertheless, from talk radio hosts to individuals in the government, there have been mounting calls in the U.S. for an attack, with an even louder drumbeat in Israel. Stretched thin fighting two wars in Iraq and Afghanistan, the military has been pushing back, but they don't give the orders.
     With this focus on Iran's nuclear ambitions, perhaps too little consideration is given to a related and equally important issue: oil.
     Seymour Hersh has written a series of articles for The New Yorker magazine on this administration's intentions for Iran, the most recent of which was "Preparing the Battlefield" in July. Hersh, a Pulitzer winner who uncovered the My Lai massacre in the Vietnam War and the Abu Ghraib prisoner mistreatment in Iraq, has numerous contacts in the intelligence community.
The Pentagon vs. the White House       His article deals principally with covert operations against Iran that recently "have been significantly expanded" using a $400 million budget. His wider subject has been the apparent conflict between the White House and the military over attacking Iran.
     One victim of this debate was Adm. William Fallon, who until recently was in charge of American forces in Iraq and Afghanistan as head of U.S. Central Command. In March Fallon resigned after expressing views in the media such as "attacking.strikes me as being not the first choice." Interviewed by Hersh in June, Fallon acknowledged there were those in the Administration who were upset by his going public. "Too many people believe you have to be either for or against the Iranians," he said. "Let's get serious. Eighty million people live there, and everyone's an individual. The idea that they're only one way or another is nonsense."
     Even Defense Secretary Robert Gates expressed alarm at the outcome of a preemptive strike against Iran. Hersh reports that, in a meeting of the Democratic caucus late last year, Gates said. “We’ll create generations of jihadists, and our grandchildren will be battling our enemies here in America”.
     On the other hand, George Friedman, of Strategic Forecasting, believes that the public debate about attacking Iran is at least partially programmed to create some war worries amongst Iran's leaders and to accelerate progress towards a new agreement between the US and Iran which covers the nuclear issues and a host of other important matters like Iran's involvement in Iraq's future.
A Sudden Thaw?      In mid-July, the Administration sent State Department's #3, William Burns, to attend talks in Geneva between Iran and five other powers – China, France, Britain, Russia and Germany – the subject being stricter sanctions confronting Iran’s nuclear program. In doing so, The Bush administration temporarily waived its long-standing pre-condition that Iran cease enriching uranium before any talks could take place.
     Iran was apparently incredulous. Iran’s foreign minister, Manouchehr Mottaki, was “visibly stunned”, said the New York Times, when he saw Condolezza Rice’s signature on the documents along with those of the five counterpart nations.
     The Iranian’s reaction is not surprising. Newsweek’s Fareed Zakaria once asked that we consider Iran’s paranoia-inducing position, surrounded as it is by nuclear powers (Israel, India, Pakistan, and Russia), with American troops next door in Iraq to the west, NATO troops in Afghanistan to its east, and an American president consigning them to the “axis of evil”. When the U.S. softened its stance, soon some harmonious overtures came from Iran. Foreign Minister Mottaki mentioned establishing a U.S. diplomatic presence in Iran, bilateral business and social relations, even direct flights between the two countries.
     With the talks proceding in Geneva, NBC Anchor Brian Williams interviewed Mahmoud Ahmadinejad. Asked on the Daily Show for a word to describe the meeting, Williams said, “It was more like, and I’m going to use a big one here, rapprochement. At one point he said to me, and I’m paraphrasing very loosely, ‘The atomic bomb is so 20th Century’”.
Rapprochement?      Is the threat over? Or is Ms. Rice being given a chance to try diplomacy in the context of a rapidly changing Middle East? Not to be overlooked are a number of provocative acts by the Iranians running up to the moment of this newly perceived softening.
     In early January, five Iranian patrol boats made a run at three Navy vessels in the Strait of Hormuz, transmitting over ship-to-ship radio a threat to “explode” the American warships. There had already been a full scale exercise by the Revolutionary Guard in the Gulf in 2006.
     For two days in early July, just before Geneva, Iran conducted a series of missile launches in the Persian Gulf, one with a range capable of striking Israel, or so Iranian state radio claimed. Among the missile tests was the rocket-propelled “Hoot” (“whale” in Farsi), which the Iranian military has described as a sonar-evading torpedo that can reach speeds of 230 miles an hour, three times that of western torpedoes.
     These challenges, coupled with Iran's unwillingness to accede to diplomatic pressure, could undercut Secretary Rice’s position. But Friedman sees it as a normal process of carrot and stick negotiation between traditional adversaries. His analysis is that the chances for a "deal" with Iran are better today than they
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have been for decades.
     We are not prescient enough to know whether Hersh or Freidman are most likely to be correct, but we do know that hostilities in Iran initiated by either Israel or the US would very likely cause Iran to attempt the closure of the Strait of Hormuz through which between 30% and 40% of the world's oil travels in tankers. So it is an important question.
     What about Israel, afraid for its very existence were Iran to acquire the bomb?
Israel and the Existential Question      Israel has shown its willingness to attack elsewhere in the neighborhood, taking out a suspected nuclear development site in Syria last September 6th. Then, in early June, more than 100 Israeli F-16 and F-15 fighters engaged in an exercise over the eastern Mediterranean was seen as a rehearsal for attacking Iran's nuclear facilities, while simultaneously signaling to Iran by its aerial refueling maneuvers that Israel has long range capability.
     Then came a July 18 op-ed in the New York Times by Benny Morris, an Israeli historian. It began, “Israel will almost surely attack Iran’s nuclear sites in the next four to seven months…if the attack fails, the Middle East will almost certainly face a nuclear war”. His thesis is so incendiary that one has to wonder whether Morris was encouraged by the Israeli government, posing as just an informed citizen, to write it as a warning to Iran.
     Morris’s reasoning goes like this: while the U.S. is capable of a sustained aerial assault against the dispersed and underground Iranian nuclear sites, in the new atmosphere of rapprochement, perhaps America will demur. In that case, Israel, despite its weaker air armada, “will certainly make the effort”. The best time for this? During the transition period between the U.S. election and January 19, while a supportive U.S. president (and Vice President) is still in office. Bill Kristol, editor of the Weekly Standard, says that, no longer concerned about his political future, George W Bush might be tempted to strike Iran if he thinks Obama is likely to win.
     Morris continues, saying that the Iranians would retaliate with missiles fired at Israel, stir their clients Hezbollah and Hamas to action, and re-double their effort to develop a nuclear bomb. That will lead to a posture of mutually assured destruction between the two nations, but, unlike the Cold War standoff between America and Russia, the other side this time has a “fundamentalist, self-sacrificial mindset”. Fearing that deterrence will not work, Israel could opt for a preemptive, nuclear strike.
     Is this just posturing, calculated to drive Iran into a deal? Perhaps, but we could not expect to know that, as any threat, to be effective, needs to be credible.
What About Oil?      If you are still with us, why are we taking you down this path?
     Even if only Israel attacks, Iran will view the U.S., “the Great Satan”, as an equal belligerent. A standard threat has always been to block the Strait of Hormuz, which this satellite photo shows to be a strategic chokepoint.

Photo: NASA
The Strait of Hormuz at the entrance to the Gulf,
a waterway as little as 21 miles wide with Iran looming
over its northern shore

     All of the Persian Gulf countries ship their oil – 30% of world supply – through the Strait of Hormuz. There have been threats in the past to do just that: to mine the strait or to sink ships to block its channels, which would have devastating consequences for the world’s economies.
      “It is understood that a country would use all possible options against an aggressor if militarily attacked. In that case, Iran would also intensify control of the Persian Gulf and Strait of Hormuz”, the commander of the paramilitary Revolutionary Guards told a Teheran newspaper. Their Chief of staff Maj. Gen. Hasan Firuzabadi said a month ago that “if the country’s interests are jeopardized in the region, we will not let any ship pass through”.
     Adm. Mike Mullen, chairman of the US Joint Chiefs of Staff, has said the U.S. would not let Iran block the Strait of Hormuz. But our ships may be more vulnerable than it is comfortable to admit. First, the strait is reportedly targeted by Iran with anti-ship missiles. Second, with an attack on Iran, nationalism would sweep the country, taking with it the moderates that have long yearned for closer ties with the West. Iran has not produced a cult of suicidal militants as have its Arab neighbors, but yet another attack on a Muslim country could change that. How would a giant aircraft carrier, with its crew of 5,000, defend against a suicide run of a dozen speedboats laden with explosives, following the example of a single boat that blew a hole in the side of the guided missile destroyer Cole in Yemen in 2000, killing 17 sailors?
     And if Iran succeeds in blocking the Strait, or causes shippers not to risk their tankers, and over one third of the world’s oil passes through the Strait. The result would be widespread economic chaos.
     In this country, it wouldn’t be just a question of higher prices for gasoline. It would bring major shortages of gasoline and diesel in a country whose food is largely delivered over the roads. What stronger message do we need about our vulnerability owing to fossil fuel dependency?
      Time to stock up?       - Stephen Wilson

Oil on the Water:

Should We Drill Offshore? Good Idea or Bad?

Artfully seizing on $4-plus gasoline as the ascendant issue for voters,  John McCain stirred up a squall when he proposed lifting the ban on offshore drilling two weeks ago, which he said would "be very helpful in the short term resolving our energy crisis".
     President Bush immediately signed on. He wants to compel Congress to overturn a ban that has been law for 25 years. "If Congressional leaders leave for the Fourth of July recess without taking action, they will need to explain why $4-a-gallon gasoline is not enough incentive for them to act," he said in the White House Rose Garden. "And Americans will rightly ask how high.gas prices have to rise before the Democratic-controlled Congress will do something."     That McCain and Bush sought to create the impression that revocation of the drilling ban will have anything to do with today's gasoline price was seen as an election tactic that had Democrats steamed. What's more, Congress is desperate to appear to be taking action in an election year, legislation to curtail speculation, is the answer to high gasoline prices.
     Time to see if we can sort out the confusion — the conflicting arguments, the twisted facts, the political demagoguery — to see whether or not offshore drilling makes sense.
Why Is the Price of Oil So High?      Speculators of course have an effect on prices, but there seems to be universal agreement that there is no way of knowing just how much. One theory says speculation represents a flight from the declining dollar and resulting inflation (it is not for nothing that oil is called "black gold"). Arguing that speculators are the cause is an attempt to shift blame. Speculators don't create an alternate universe; they place their bets on what they think will be the future reality. Whatever effect they have is small compared to real world supply/demand balance.
      In blaming Democrats in Congress for inaction, the Administration wants to mask the fact that much of the oil price run up owes to the nearly 40% decline in the dollar's value against other major currencies during Bush's years in office. Many factors, including a near doubling of our national debt, contribute to this weakness. This means that one needs a great many more dollars to buy a barrel of oil — or a tank of gas.
     But the essential problem is that worldwide growth in demand is approaching the producing countries' ability to supply it, a disequilibrium likely to worsen. Excess capacity has plunged from 5 million barrels a day to in 2002 to 2 million now. It is uncertain by just how much the Saudis – who are thought to be the only oil exporters capable of increasing production quickly, but who are notoriously secretive about their pumping capacity — could ramp up production to keep pace with demand.
     Moreover, tight supplies are exacerbated by a patchwork of troubles: Militant gangs have reduced Nigeria's production by 1 million barrels a day; Russian output has plateaued; Mexico's political inaction has allowed its state-owned oil industry to decline. Speculators factor in these realities.
     Once current oil prices — $144 a barrel at this writing — move through the pipeline to gas stations, experts say you can expect to pay $5.00 a gallon.
Where Things Stand      Drilling was banned along all of America's coastlines other than a 15% stretch along the Gulf of Mexico by a law signed 27 years ago by President Reagan. Senator McCain and President Bush want the ban lifted for the Outer Continental Shelf, a legal not a topological band of ocean floor that wraps the U.S. between 3 and 200 miles.
     Those opposed to the proposition argue that the oil companies already hold 68 million acres of federal lands that go unexplored, and that only 10.5 million acres of the 44 million leased offshore have been put to use. A bill in the House would require the companies to use them or lose them. Senator Obama suggests levying a surcharge for every leased acre that has not been put to the drill bit. David O'Reilly, chairman and CEO of Chevron, asks in a New York Times interview that legislators learn the facts, that geological exploration must precede drilling, that it takes time, that seismic testing will find nothing on much of that acreage.
     Nevertheless, the oil majors have much that is untapped. Why do they need more? Skeptics believe that, as two oilmen, Bush and Cheney want to see the oil companies warehouse as much acreage as possible. On the other hand, it is clear that both Democrats and Republicans at the State and Federal level have blocked off-shore production of proven reserves to such an extent that U.S. oil giants have had to explore in places like Angola rather than produce proven reserves right here is this country.
Lifting the Ban: A Quick Fix?      Hardly. A 2007 analysis by the Energy Information Administration concluded that opening drilling on the continental shelf "would not have a significant impact on domestic crude oil and natural gas production or prices before 2030."
     Confronted with this timeline, McCain nevertheless said that rescinding the ban "would have psychological impact that I think is beneficial". This drew derision from Senator Obama, who called McCain's admission "Washington speak for 'It polls well'". But other commentators, who know how markets work, believe that the prospect of more supply in the future affects expectations of market participants and plays a major role in pricing.
     Beyond the complexity of analyzing millions of square miles of deep sea for where best to drill, and the logistics of preparation, even that lengthy timeline probably does not factor in a worldwide shortage of drilling ships. The New York Times brought that starkly to light when it reported that "over three-quarters of the drill-ships currently under construction have already been contracted to oil companies eager to benefit from triple-digit oil prices". Each larger than a World War II aircraft carrier, eight of the nine deepwater rigs under construction at the world's largest builder are already under contract for periods ranging from four to seven years once they leave the shipyards in 2009 and 2010. Adding to the problem, the article cites shortages of steel, engineering and manufacturing capacity.
So, Should We Drill?      There's nothing like a hole in the wallet to cause the public to abandon lofty environmental ideals. A Gallup poll in May found that 57% of Americans surveyed are in favor of drilling for oil in offshore and in wilderness areas now off limits.
     Although the pretext for bringing up the subject may have played to voter misconceptions — that drilling offshore would quickly affect today's gas prices -- it does raise the question of whether we should do something different with our offshore properties, and to review what good might come from any such action.
Will it be our oil?      If we boost production in the U.S., so goes the argument, we will send fewer dollars to the petro-states. Is this true? Ed Markey (D-MA) claimed a bill he introduced in 2007 would "back out every drop of oil we currently import from the Persian Gulf". Newt Gingrich has spoken of "a strategic energy policy which is explicitly aimed at making the Persian Gulf and the dictatorships less wealthy".
     Those claims are hogwash. It's a world market with a global price set daily. The oil companies that drill offshore (or in ANWR) will sell to the highest bidder, a trader in London or Rotterdam, for example, for delivery to China, say. Users purchase oil according to its grade and without regard to country of origin. Many do not know that the U.S., despite high gasoline prices, right now exports 1.4 million barrels a day.
     Moreover, the huge cost of deep sea drilling leads to collaboration. Jack 2, an elephant 270 miles southwest of New Orleans that may yield 15 billion barrels, was drilled by a consortium of Chevron, Devon Energy and Norway's Statoil ASA. The rock formation is under 7,000 feet of water and 20,000 feet of earth mantle — a record — and cost $100 million to bring in. We cannot expect any such consortium, or other oil
Continued next column

companies, to give America a sympathy discount. But the impression that we are sitting on our reserves while we drain those of other countries is an argument than many feel has merit.
Would Prices Fall?      However, the more we produce in this country, either for export or for home use, the better for world supply/demand balance and for our balance of payments. And therefore for prices.
     Newsweek economics columnist Robert Samuelson says "no, we can't drill our way" out of the problem, but, like an economist, he also says that "producers would have less power to exact ever-higher prices, because there would be more competition among them to sell".
     That fails to recognize that demand is forecast to rise faster than new production can come on stream, driving prices ever higher. New Energy Department forecasts see world oil demand growing 40% by 2030, including a 28% increase in the U.S.
     It is also true that only a quarter of the oil industry is not state controlled, and half of the rest is a cartel. Other factors threaten to drive oil prices higher: the need to explore in increasingly hostile climes, for oil that is more viscous, sulfurous and expensive to refine, and that require drilling ships that run to $500 million a copy -– if you can find one.
How Much Oil Is There?      No one knows for sure how much oil lies off America's coastlines. Only in the Gulf has there been much exploration. The Minerals Management Service, the office charged with estimating the assets of the federal domain, figures there to be 17.8 billion barrels under the restricted waters (and 76.5 trillion cubic feet of natural gas). Here's a quick rundown, with figures in billions of barrels:

Atlantic 3.8 Gulf of Mexico 3.7
Southern California 5.6 Central California 2.3
Northern California 2.1 Washington-Oregon .4

That comes to about 24% of the 75 billion barrels that the Energy Information Administration estimates for all federal properties currently off-limits for development.
     The 15% of the continental shelf where drilling is permitted is in the Gulf of Mexico, yielding about 27% percent of U.S. oil production, which itself is less than 40% of U.S. consumption – 21.3 million barrels daily at its peak this past January. Oil companies are particularly interested in seeing the eastern Gulf opened to exploration because it is shallow and therefore easier to drill. The National Petroleum Council estimates that the zone could have 5.2 billion barrels of oil (and 36.7 trillion cubic feet of natural gas), quite a bit more than the government tally.
     But all such estimates are speculative, and disinformation abounds. Amplifying President Bush's call for immediate Congressional action, Newt Gingrich says in a video on the Internet, "The Brazilians just discovered two huge reserves in the Atlantic ocean. These are so large that the Brazilian's went from estimated reserves of 10 billion barrels to 90 billion". He leaves the inference that we must have 90 billion in our Atlantic, too. Not likely, given that Brazil is a hemisphere away.
Is Modern Drilling Safer?      Proponents of drilling regularly say modern oil production is much safer. "Environmentally friendly", the White House calls it. Media commentators regularly repeat this claim, but there is a need for substantiation.
     George Will says there has not been a major spill from an offshore U.S. well since 1969 (which would be Santa Barbara) and that Katrina and Rita destroyed or damaged hundreds of drilling rigs without causing a "large" spill. "Large" disguises the fact that there have been spills — 124 smaller spills that the Coast Guard says released more than 700,000 gallons of petroleum products. The government will not admit to crude oil spills in the Alaskan or Beaufort Seas but the NRDC reports:
     "Spills are an everyday occurrence in Arctic oil drilling: the oil industry reported 4,534 spills across Alaska's North Slope and Beaufort Sea from 1996 to 2004, involving more than 1.9 million gallons of diesel fuel, oil, acid, biocide, ethylene glycol, drilling fluid, and other materials".
     Charles Krauthammer, a conservative columnist for the Washington Post, also cites Katrina and Rita to make the case that modern drilling is safe and hasn't "resulted in spills of any significance". Yet three paragraphs after assuring us that drilling today is done with "far more environmental care", he tells us that not drilling off our shores just moves "despoliation" elsewhere, such as the Niger Delta, where "oil spillages poison the lives of many of the world's most wretchedly poor".
     Deep-sea drilling ships cannot be anchored to the seabed, which can be up to 10,000 feet down. Moved in all directions by wind, currents, waves, they use global positioning satellites to drive an array of propellers to constantly reposition themselves over the same spot. All the while they are tethered by a miles-long skein of drilling pipe, which could someday snap in a severe storm.
     Even if we accept that oil companies have improved their record, extensive drilling across a span of future years means that a major spill off our coastline, brought about by accident or storm, cannot be ruled out, and should be allowed for in making our decision of whether or not to lift the ban.
Who Benefits?      Certainly the oil companies. They are increasingly eager to add to their assets. With 77% of world oil reserves now state owned, nationalized oil has become the trend. There are 13 state-owned oil companies controlling more reserves than ExxonMobil, the largest multinational company.
     American companies are being boxed out. Russia is using environmental claims to stall multinationals developing the rich oil and gas deposits of Sakhalin Island northeast of Japan. Venezuela has been confiscating majority interests in projects underway in the heavy-oil fields of the Orinoco Belt. Mexico, another key supplier to the U.S., has never allowed outsiders (and is in serious decline).
     Oil discoveries measured in billions of barrels promise an enormous windfall to the oil companies, even at the huge costs of operating at sea. The question is whether we are we likely to see a repeat of the 1990s, when Congress waived royalty payments to encourage deep-water drilling in the Gulf of Mexico. Royalties were to be triggered only when the price of oil rose beyond a given threshold, but for two years the trigger clause was left out of some 1,000 leases. And now the oil companies are challenging the government's right to impose a trigger at all. Losses to taxpayers are reckoned at $53 billion.
End Result?      As seen, oil would not arrive for more than a decade if the U.S. were to expand drilling at home. Prices would be affected only marginally, given that the U.S. has only 3% of known world reserves.
     Nor would we keep the oil that the companies produce. It would be sold on world markets. In fact, that is the one positive claim to be made for opening drilling in moratorium zones: America would be producing more of a product that, whether sold to the world or used locally, would work a mix of reducing imports and the trade deficit while generating royalty and tax revenue. That is, if Congress could resist turning such a program into another giveaway.
     So there is no clear fix, quick or otherwise. The coming worldwide competition for oil looks like it might well drive costs ever higher and raises the still more alarming prospect of shortages as part of daily life. The best immediate defense, while we develop alternate forms of energy for the long term, is conservation.
     We could be happily surprised by how higher prices bring down demand and increase supply so that oil will still be expensive, as it should be, but less than $140 a barrel.
      - Stephen Wilson