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When
Markets Fail:
America
leaps off the gas cliff without a parachute
Julian Darley*
August 13, 2003r
Preface
Article
Reason for Worry
A tale of two Bushes
Alice’s Gas
Wonderland
ANWR?
Alaska?
LNG
A Dangerous Charade
Writing on the Wall
Endnotes
Preface
Vancouver, 13th August 2003
Since the June 2003 US Dept
of Energy (DOE) Natural Gas (crisis) Summit, there have been record injections
into the
US
natural gas storage system. Those who prayed for a mild
summer, have for the most part so far had their prayers answered. The
predicted bad hurricane season has as yet also not really materialized in the
Gulf of Mexico. By the end of October, when storage refilling ends, it will be
possible to get a better idea of whether the
US
will see price spikes and even shortages, or whether it may scrape through,
yet again. In many ways the picture above ground looks superficially
reassuring. Below ground, however, conventional natural gas production is not
going well, with falls in
Canada
and the
US
being recorded ranging from 3% to 8%.
Thus, unconventional gas will have to
shoulder an ever increasing part of the burden, and there is great excitement
in
Canada,
where coal-bed methane (CBM) is the next big thing. In the
US,
coal-bed methane is already well established, and so are the problems. There
are efforts to try to reduce the effects of the waste water normally produced
as a by-product of CBM operations. Even so, since CBM is inherently slower to
produce than conventional gas, the
US
is inevitably going to rely more and more heavily on gas imported from outside
North America, by LNG tanker, as Alan Greenspan has noted. To underline this,
the next DOE Natural Gas summit will focus on LNG and there are plans to build
more than a dozen LNG receiving terminals in the
US.
For those who want Business As Usual to continue, the question must be how
quickly these new and very expensive terminals and associated tankers and
export terminals can be built. For those who are acknowledge that there limits
to life on Earth, this represents an historic opportunity to start on a new
and much lower energy path.
Article
Washington,
10th July 2003 (with updates 13th August 2003)
In the aptly chosen
Mayflower Hotel grand ballroom, the atmosphere was coldly surreal. Outside,
late June Washington was climbing towards a hundred degrees, the hottest day
of a damp and dismal year so far. Inside, the air conditioning held the
gathered guests a comfortable thirty degrees cooler. A
perfect and profligate example of the absurd charade about to unfold.
This particular piece of theater, was produced in a hurry by US Energy
Secretary Spencer Abraham, hosted by the National Petroleum Council, and
scripted by global corporations, like Dow Chemical and billed as a Natural Gas
(crisis) Summit.
The outcome was both
farcical and grim: Americans should be worried, because their corporate
masters with their political pawns, still have not
grasped that this is not a temporary hiccup, with a happy end, but a gruesome
farce written by greed, but now being firmly dictated by geology, not by
‘invincible’ markets.
The idea, according to
Abraham’s opening speech, was that the scores of invited industry guests would
furnish the short-term solutions to get
America
out of what could be its worst energy crisis since the 1970s. The public were
allowed to attend, but not given any opportunity to speak. Most notably, as
the Union of Concerned Scientists pointed out, no-one from the renewable
energy industry was represented amongst the panelists or the invitees.No surprise there, but still the date of June 26th,
2003 should be one for the history books, as it marks a turning point in the
history of petroleum. The
US,
having peaked in oil production more than three decades ago, has realised that
the same is now true for natural gas.
US
oil peak has clearly been disastrous for the planet and all its life-forms as
the
US
finds itself needing ever more of the planet’s oil production. This article
will lay out some context for future judgments on whether gas will follow
suit, and lead to even more militarization of
US
energy policy and more misery for the people that have the misfortune to live
in gas- and oil-rich countries.
Since natural gas is a
complicated and strange business, it is worth sketching some of the back-story
of the energy crisis sequel America now finds itself in (the first ‘show’ was
the oil crisis in the 70s). This will also help us understand why the industry
solutions presented will only work with a great deal of luck, and why at best
they will only stave off the inevitable finale for a while. Though a while may
be just long enough for Bush to arrange a second term (assuming the mainstream
media remains compliant in asking no really awkward questions regarding 9/11,
the real reasons for war(s), and the real state of the American economy and
its monetary system).
Though regular natural gas
watchers will already know much of the background to the present natural gas
situation, some may not. The broad facts are simple enough, though the detail
is as confusing as it is vital.
Overall, the
US
consumes about 23 trillion cubic feet (Tcf) of
natural gas a year,roughly 75 thousand cubic feet (Mcf)
per person, about 1 Tcf every 15 days, 50 to 60
billion cubic feet (Bcf) per day. If you think
that’s a mess of numbers, just wait till you throw in metric production from
Canada
(litres, cubic metres, metric tonnes), other US
pricing in BTUs and quads, and what gases can actually be in natural gas. For
those more familiar with the crisper world of oil, the
US
uses gas equivalent of about 11 million barrels a day, or 4 billion barrels a
year, which is similar to
America’s
entire oil imports, and more energy than is consumed by all
US
transportation combined. Demand is colossal and rising. However, domestic
production is now less than 20 Tcf per year and
falling fast. Every year, the
US
must find more than 3 Tcf, or close to 20% of its
consumption, from outside its borders.
Because of failing supply,
there was a huge drawdown this winter from the underground gas storage system,
which came dangerously close to its working minimum (the vital but complex
business of natural gas storage will covered fully in my forthcoming book
about the natural gas crisis). Refilling the gas storage system ahead of this
winter has been painfully slow (though see preface above), despite a record
injection conveniently announced on the day of the crisis summit. The
following week’s injection was nowhere near this amount, and could lead a
cynical observer to the impression that some misleading window dressing was in
play (since then injections have mostly been high – but significant questions
remain as to how this has been achieved). By the administration’s own
calculations, the storage is likely to be about 400 Bcf
short by the time winter heating season starts in October. That is easily
enough to disrupt the whole system.
Of course, those in power
proclaim that the answer to all this is to let global free markets do their
magic. Why not just import more gas to make up the difference? The
US
would dearly like to, but physics and lack of planning have closed this escape
route in the short term. Gas is hard to move
except by pipeline. That means getting it from
Canada,
since
Mexico
is now a net gas importer (and likely to remain so till 2019, according to the
DOE). The trouble is that Canadian production is also declining. That leaves
only the hard way: shipping LNG (Liquefied Natural Gas) mainly, from Trinidad
at them moment, and soon from Africa and beyond, which is a costly and complex
operation, for which the
US
presently has woefully insufficient infrastructure. What is more, these
distant sources are subject to depletion too, and not a few political
instabilities.
In the murky world of gas,
the details are convoluted, and the big picture is rarely revealed, but it is
now becoming apparent even to the terminally optimistic energy industry that
something is going seriously wrong – but they daren’t say it too clearly, in
case Wall Street and the investing public finally starts to understand. Almost
every aspect of natural gas is reaching a limit situation, and the same is
true of global oil. Since renewable energy at industrial scale is way over the
horizon, there is nowhere to turn in the short run.
Even
Gwyn Morgan, who was not present at the summit, though he is head of
the largest gas producer in the North America, has said that North American
production has peaked, and that to maintain reserves the industry must find
new gas every day that is more than the amount being imported from Canada.With the noose tightening,
America
is now discovering what John Muir once said: "When one tugs at a single thing
in nature, one finds it attached to the rest of the world." The skeins of
nature are now drawn very tight, and are may be near to snapping.
However, nature is
bountiful, and the friends of Secretary Abraham all agree that they want to
tug at supply, though there is some disagreement about other matters.
First the harmony. All the panelists from industry
to government (isn’t it now the same thing?) repeated the incantation over and
over again that the
US
natural gas crisis was not Market Failure, but as usual government regulation
was the culprit.
In a speech supposed to
offer some analysis and set the stage, Daniel Yergin,
fresh from his assertions that Canadian (natural-gas fuelled) tar sands
operations would save the world from further oil woes, explained that though
the US was in a tight corner, there was an answer: the Market. He didn’t
mention that rampant and uncontrolled deregulation and free markets had helped
gas demand to explode, while extraordinarily inflated estimates of reserves
from the both US and Canadian Geological Surveys, had helped to foster the
illusion of endless supply, bound only by technology and human imagination.
Nor did he mention that corporate corruption, as in California 2001, had
masked a worsening real underlying supply problem, nor that only the surprise
find of the ‘huge’ Ladyfern gas field in British
Columbiaand the kindness of El Niño had
helped the US avert disaster in the last twelve months. But this year there
have been no giant gas finds, and El Niño’s
moderating effect has passed. At last the
US
government has realized that something desperate must done, or there could be
blackouts soon, or worse – economic growth will be curtailed, and the
dissatisfaction of jobless, cold voters will rise as elections approach. Not
exactly what Karl Rovewants to see.
However, far from giving
the White House a break, industry users bluntly told Abraham and other
government representatives that they want more gas and they want it now, and
they don’t care how they get it. From chemical giants, through fertilizer
makers, to electricity producers, they are all calling on the White House to
lift the moratorium on drilling off Florida, remove drilling restrictions in
the Rocky Mountains gas plays, relax widespread and popular clean air rules,
and connect Alaska to the gas grid with a huge and expensive pipeline. And no
doubt Mr. Abraham and the rest of the green-bashing
neoconservatives would love to do just that.
There are a few tedious
impediments in the way of course, such as the laws of physics and perhaps even
the voters of the
US.
Even so, relaxing the clean air rules is the only measure that would make much
difference this year. Even that is questionable. One of the government’s most
astute energy advisers has suggested that only fervent prayer is going to get
them through.
Reason for Worry
Why are
the short-term non-divine fixes unlikely to work? Take the clean air rules.
All of the existing legislation, from Nixon’s original Clean Air Act of 1970,
through various interim amendments reacting to non-compliance, and Bush
senior’s 1990 Amendment which added ozone limits and more, all in effect
principally target coal-fired electric power stations, though motor vehicles
were another important factor. The Clear Skies Act being promoted now by Bush
junior, will hit coal even harder, because it will aim for big reductions in
mercury emissions, which only really affects coal, as well as limiting
SOx (oxides of sulphur)
and NOx (oxides of nitrogen), which also hits
coal, though oil is also a culprit. As a side note, global warming watchers
are furious that the Clear Skies Act says absolutely nothing about carbon
dioxide emissions.Nonetheless, even with this egregious omission, all the
legislation encourages consumption of natural gas, both for electrical power
generation and for home and office heating, often called space heating.
In fact, relaxing clean air
regulations (to allow more coal to be burnt, thus saving natural gas), even
temporarily, would mean reversing the momentum of more than a quarter century.
It is likely to prove unpopular with many voters, even non-Democrats. The call
for allowing more polluted air comes most loudly from the electrical power
producers who want to burn more coal or switch to oil where possible, but
without permit waivers they often cannot do it. There are likely to be many
fights over this, and court-bound delays. But that isn’t all. Just as the Muir
metaphor suggests, there are many other strange plays in the fuel-switching
game, which given the central importance of electricity in industrial life,
should be understood by all Americans.
To be able to switch to
another fuel, a power station must be built or retrofitted for the task, and
there must be sufficient alternative fuel to burn.
In fact, many of the
hundreds of new power stations coming on stream now are all gas and not
dual-fueled, even though they were supposed to be. While this may be partly
because single fuel plants are cheaper, some are also more efficient than
dual-fueled plants. Furthermore, many of the plants which can fuel switch are
older and often only half as efficient. Their number is dwindling as new
single-fuel stations replace them. Thus, the absolute capacity to switch is
further limited.
This situation harkens back
to the earliest days of boom and bust oil in Pennsylvania: extraction and
price cycles of fluid, non-renewable natural resources tend to ‘resonate’
exactly out of sync, so that when the price is up, there is a stampede to
produce more, which then (a few months later) floods the market, reduces
price, ruins operators, and production capacity falls like a stone. The
ensuing shortage starts the whole cycle off again. This has been happening
disastrously with North American natural gas supply for the last few years. It
is now too late for North America to manage its gas production sensibly, but
some countries who are just beginning to be major producers of gas would do
well to look at, and avoid, what has happened in America, and also in Britain,
which is about to suffer the same fate as the US, and become a net importer of
gas. The free market is functionally incapable of dealing with this kind of
non-renewable resource. It does much better with clothes pegs and
Playdough.
Then there is the problem
of the fuel itself. Stocks of distillates (diesel and fuel oils) like heating
oil, which is a primary alternative fuel, are now quite low in the
US,
partly because of historically low crude oil stocks, and the knock-on effect
of refining distillates into gasoline to improve low stocks of that fuel. It
is as if a bear with octopus tentacles is gripping
America
ever tighter. This means that other important, but lesser users of heating oil
users like schools and smaller hospitals, who may not be able switch fuels
easily, and don’t have long term contracts, can see their fuel bills rocket
literally overnight if local electricity producers switch to oil en masse.
Public sector operations are already near financial breaking point in many
places. However, so are many of the private enterprises with new gas-fired
plants, like NRG Power Marketing,
bankrupted by the 700% rise in gas prices over three years, and unable to pay
its loans and trying to void its contract to supply
Connecticut.
Companies with new gas power will do what they can to survive, and when they
judge fuel-switching to be in their best interests, they are even more
unlikely to worry about the public good.
Having said that, there is
yet another twist that may slow the switch from gas.
Although the calorific equivalence of gas to oil means that $5 per
Mcf (thousand cubic feet) roughly matches oil at
$25 bbl (barrel), Raymond James & Associates is now suggesting that the gas
price would need to be more like $8 before switching will take place, meaning
a three to one factor, rather than five or six. The reasons are those given
above: low distillate inventories and the much higher efficiency of new gas
power stations (that makes gas more attractive than just its straight energy
value).In fact, as I write this (13th August 2003), oil is
still over $31, so that according to Raymond James, gas would actually then
need to be at least $10 for fuel switching (in fact it is still just over $5).
If they are right, then the industry and government calls for fuel switching
will fall on very deaf ears, and we shall have one more factor pushing gas
prices upwards.
The foregoing shows that
fuel switching, which is industry’s (and probably
the White House’s) best short-term hope for avoiding more gas price hikes, if
not outright shortages, is going to be a bumpy ride.
Next in the time frame is
more drilling. More drilling failed to raise supply
after the price spikes of two years ago,
but the industry will say that is because they were using old prospects. They
say that the only good and easy new prospects are in Federal lands and seas,
meaning the Rocky Mountain territories of New Mexico, Colorado, Wyoming,
Montana and the eastern part of the Gulf of Mexico, off the Florida coast.
It is almost a physical
impossibility to get from permit to pipeline in less than six months, and even
a year is tight, so extra drilling cannot be seriously regarded as a
short-term fix. Nonetheless, the gas companies will use this situation to
argue, lever and lobby for a great increase in permits to drill. No doubt the
White House would like to back them all the way, indeed Cheney’s National
Energy Plan is quite explicit about it, but it may not be so simple. One of
the defining factors of this situation, as with most petroleum peak events, is
that it is the conventional, easy and cheap reserves that generally get taken
first. There are usually reasons why the unconventional reserves are so
called. They might as well be called “awkward”. So it is with most of the gas
that is off limits.
In the Intermountain West,
which means mainly Wyoming, New Mexico, & Colorado, much of the new gas will
be coal-bed methane (CBM). This is gas associated with coal deposits, usually
not economically interesting in themselves. The gas is extracted by pumping
off some of the water above the coal deposit, and fracturing the coal seams
hydraulically or with nitrogen. The pumped water, however, contains many
contaminants that increase its salinity and sodiumto abnormal levels.When this water reaches ordinary soil, it will usually kill
the existing vegetation while encouraging noxious species. It has a toxic
effect on crop and range lands, especially when used as irrigation water. As
so often with regulations, despite the banning of ‘direct stream discharge’
for new wells, many CBM producers are still allowed to discharge straight into
stream channels under “grandfathering” schemes. Wells in the Powder River
Basin in Wyoming can produce anywhere from 7,000 to 28,000 gallons of
contaminated water a day, and there may be as many as three wells per 80
acres.For an 80 acre system
that can be over 50,000 gallons a day.
Ranchers and residents are
beginning to tire of having their lands and watercourses ruined, and even
those in favour of conventional gas production, such as Tom Leach, a former
oil and gas worker from Colorado, are opposed to coal-bed methane. Last year,
in what may be a landmark case, Delta County, Colorado (usually pro-mining)
opposed a federal permit to allow CBM drilling.If this pattern of local county opposition to federal
permitting expands, it will make it much harder and slower to increase CBM
production in the Rockies, where the NPC estimates there is 137
Tcf of gas off limits. Wyoming, home state of Dick
Cheney, and the Green River and Powder River Basins, is becoming a hotbed of
CBM resistance and organizing. There is evidence of the Bush administration’s
corruption in packing the Bureau of Land Management with ex-industry people,but this can have the opposite effect intended, in helping to
galvanize hostility and making it easier to mount legal opposition to permits.
Rising popular resistance
to CBM may be tempered by the realization that this is not simply a nationwide
re-run of the California phenomenon,but a real shortage --not just short-term market distortions
and corporate greed. Despite the local political difficulties, there is no
doubt that the
US
will have to become increasingly reliant on coal-bed methane, or face higher
likelihood of actual shortages.
A tale of two Bushes
The other major area of
contentious gas supply is offshore. All the
US
coasts are targeted, but the supply prospects look most promising in the
already prolific Gulf of Mexico. The problem for the Bush administration is
that most of the Gulf area that is presently off limits is in the jurisdiction
of Jeb Bush, the president’s brother, and arch
neo-conservative. But Jeb knows that three
quarters of Floridians are opposed to drilling offshore and George W. knows
that Florida is vital to another term in Pennsylvania Avenue. And yet
America
is desperate for the energy that may be off Florida, so there is a multilayer
battle going on.
No-one at the
industry-dominated gas summit referred to this tricky conundrum directly, of
course. They just made calls to open up restricted federal areas. But in a
private press briefing, a Fox News reporter aggressively asked Secretary
Abraham why he didn’t just open up Destin Dome, off the Florida coast. Was it
politically unacceptable?
In perhaps the most
revealing remark of the day (albeit not made directly to the ears of his
corporate supporters), Abraham said “That decision [to block offshore drilling
access] was made after taking into account a lot of different perspectives.”
These words would not have pleased those with deep pockets but shortening
tempers who were drinking coffee suitably out of earshot. Just before this,
Abraham said “I think that those policies are not ones we are looking at right
now. What we’re trying to look at is other ways to address this short term.
The broader policy issues are certainly open to Congress as it continues work
on an energy bill.”
It looks as if for now the
Gulf of Mexico will see further developments mainly in already permitted
areas. This means more deep water drilling, which finds less gas and more oil,
and new very deep wells in the old and once highly prolific shallow areas.But Jeb Bush should not relax too
quickly, because in June the Senate moved to allow a new inventory of oil and
natural gas resources along US coastlines, which some say is a prelude to
lifting bans on offshore drilling on all three coasts.This is no doubt what Abraham meant by “broader policy
issues”.
One of the puzzles in this
‘supply push’ scenario is the actual amount of gas being fought over. To hear
industry talk one might imagine that the
US
was withholding reserves the size of
Iran
or
Qatar.
But in fact the numbers relative to US consumption are almost derisory, even
though they might supply a less greedy and gas-addicted country for decades.
Destin Dome, off Pensacola, for instance is reputed to have three trillion
cubic feet of gas – a month and half of US demand. Petroleum geologists are
not even sure of that, some even referring to it as Dusty Dome. Furthermore,
these are not the giant easy shallow plays of the Gulf forty five years ago,
but entail drilling to 20,000 feet,with high-powered rigs costing up to $50,000 a day. With
natural gas at $5 per thousand cubic feet (Mcf),
operations are still economically profitable, but the ‘energy profit’ (Energy
Returned On Energy Invested) is sinking rapidly.
To underline this, in signs
which should send shivers through Washington, both BP and Shell have recently
sold off Gulf of Mexico holdings to Apache, a company known for operating
mature – in other words declining - fields.
Alice’s Gas
Wonderland
If the
US
is going to go down the path of draining every last gasp of domestic gas, then
surely it would be a good idea to have some sound advice from petroleum
geologists. But on June 26th 2003, not one such expert was called
on to evaluate the claims of industry that the only real way forward was much
more drilling.
In fact I personally asked
Energy Secretary Abraham why there were no petroleum geologists in the
line-up, and he asked, with evident impatience, how that would help the
short-term situation. The unwelcome answer would be that more drilling, allied
with free market deregulation and greed, will get
America
still further into a black hole, from which it looks decreasingly likely that
it can escape. A stark assessment of US gas reserves may help the American,
and indeed Canadian, public to understand that both the long and short term
solutions involve using less energy all round, with the focus being on using
less natural gas and oil.
Meanwhile, before that
unlikely day occurs voluntarily, the other offshore sites on the
industry’s shopping list are the two main oceanic
coasts. The problem in both cases is once again geological lack of large
proven reserves. At the June 26th Gas Summit, some US companies
spoke of wanting to emulate Canada on its eastern seaboard, with its Hibernia
and Sable Island gas production. But the geology on the
US
coasts further south is not the same. On the west coast, little oil or gas has
been found anywhere, except some oil off California. There are no other proven
petroleum deposits until you reach Alaska (the Cook Inlet), which aside from
potential North Slope natural gas production, is in swift decline.
ANWR?
Alaska?
And what of the Arctic gas
of Alaska and the Mackenzie Delta? It was discovered in the 1970s, and is
regarded as having about 35 and 9 Tcf (trillion
cubic feet) respectively. If this were all agreeably located in Texas (say
near a certain ranch in Crawford?), then it would be quite a useful deposit,
albeit not even two years of
US
consumption. On the other hand it would probably all be gone by now. The only
realistic way of getting the untapped Arctic gas is via very expensive
pipelines. The pipeline to the Mackenzie Delta in
Canada’s
Northwest Territories has finally been set in process, but there are many
regulatory procedures which may slow its completion somewhere between 2008 and
2010.When or if it is finished, it is scheduled to provide
somewhere between 800 million cubic feet and 1.2 Bcf
per day to Alberta. Given that the tar sands are projected to require an extra
1.5 Bcf,
that seems to offer little relief to American consumers.
Some believe that efforts
to get a gas pipeline to Alaska appear to be complicated by the Mackenzie
agreement,but not all of the potential pipeline builders agree. What is
not in dispute is the fact that the pipeline is not here now, will likely cost
at least $15bn, and probably much more if recent Athabasca tar-sands project
over-runs are anything to go by, and will not be ready much before 2012, even
if everything goes to plan and the US government offers huge subsidies.
LNG
The final
thing that industry agrees on, within the realm of ‘supply push’, is the
necessity to ‘globalize the gas market’, by which they simply mean increase
LNG imports. At present, the
US
imports about 1% of its gas consumption through three LNG terminals. A fourth
terminal, built in 1974 at Cove Point at the southern end of Chesapeake Bay,
will be online before the end of the year, and will add 1Bcf per day. More
than a dozen new LNG terminals have been proposed, and that can only be a
small beginning if the
US
is to import 10% by decade end.There was already local resistance to the Cove Point
reopening, but it was overridden by the Federal Energy Regulatory Commission –
just one month after 9/11.Whether it will be so easy to run rough-shod over widespread
and well-organized local objections for new LNG plants remains to be seen.
There will have to be an enormous parallel effort in LNG tanker building as
well, otherwise the new terminals may find
themselves full of no more than thin air.
Not surprisingly, the June
26th Gas Summit saw strong representation from the LNG industry,
which rightly senses that a long period in the American wilderness must surely
be coming to end. They did not highlight the likelihood of local resistance to
new terminals, nor the fact that a whole LNG supply train, including
liquefaction system, tanker fleet, regasification
plant and associated pipelines costs between $2bn and $5bn, nor that the
US
will have to commission the expensive new vessels from the Far East, further
increasing the trade deficit. In an oddly jarring note, Johnnie Burton, head
of the Mineral Management Service (MMS) which administers the Gulf of Mexico
Outer Continental Shelf petroleum reserves, said that she considered LNG to be
a short-term price stabilizer and not part of the long-term picture. This was
not the news the LNG industry wanted to hear.
However, they needn’t be
too disappointed, because on July 8th US Energy Secretary Abraham announced
that “later this year” there would be a second natural gas Summit, to “discuss
increasing LNG supplies” to the US. The invitees will include energy ministers
from gas exporting countries and industry. The new summit will “take a fresh
look at the world’s LNG resources and markets” and “explore global natural gas
resources, proposed LNG supply projects, and export and import terminal
facilities”.
A Dangerous Charade
Having looked at
fuel-switching and hopes for new supplies, industry consensus ends. It must be
stressed that fuel-switching is a risk, more than a
little dependent on the weather being kind, and all of the other options are
not short term.
Considering that Spencer
Abraham either personally knows most of the people he invited, not least
because some of them give him campaign money, and they have made written
pronouncements beforehand, why did he assemble a bunch of industry cronies who
were bound to tell him to increase supply immediately, which is impossible,
and reduce permitting, which unless done covertly will be politically costly,
and won’t help in time for an election anyway? Abraham’s job may well be on
the line over this, and indeed so might the
President’s re-election chances.
Is the Bush regime so
myopic and corrupt (colluding with the corporate kleptocracy from which they
spring), that they cannot see what is staring them, and the American public,
in the face?
The reality is that North
America is a mature gas province, and that it has most certainly now peaked in
production, just as with oil some thirty years ago, and any increases in
continental gas consumption will have to come from LNG imports. Aside from the
1 Bcf from the reopened Cove Point terminal, there
is no possibility of any more quick LNG, yet
Secretary Abraham has just announced a follow-up gas summit, this time
entirely focusing on LNG, which will include energy ministers from gas
exporting nations.
That leaves one other
option: demand reduction. To judge from Abraham’s opening remarks, and the
tenor of the DOE (Department of Energy) website, that may have been what he
had really come to hear. If so, then Mr. Abraham’s previous bad record on
green issues has come back to haunt him. With none of his normal
environment foes present (except the NRDC who bizarrely backed the Alaskan
pipeline), the only words of demand reduction came from the unlikely source of
the American Chemistry Council (ACC), who have said that “business as usual
will not work this summer”.They have called for “a massive public education campaign to
convince Americans to use less electricity this summer”.Furthermore, they have appealed to government to cut
electricity and gas consumption in its 500 federal buildings. This at least
seems possible. However, the ACC goes on to call for states to follow suit.
The Democrats may decide to pretend to comply, but in reality do the opposite,
or do nothing at all. It would be easy to do: gas numbers are notoriously easy
to fudge, often revised, and are confusing at the best of times (which these
are not).
Needless to say, the ACC
call for reduced electrical consumption was entirely self-serving, since
natural gas is a vital, and now painfully expensive, feedstock for everything
from plastics to pharmaceuticals. Revealingly, for the ACC, at least publicly,
the crisis is about “the runaway price of natural gas”,not about depletion. Meanwhile the electrical power producers
are unlikely to have much time for demand reduction since they have spent more
than $100bn in the last few years on new gas-fired power generators,and much of it is now just coming online and hungrily looking
for a return on that investment.
That leaves more ‘demand
destruction’. Fertilizer industry representatives noted that their industry
had borne the brunt of the three years of demand destruction, and that drastic
refilling of the gas storage system was being done mainly at their expense.
Half of their industry was now lying idle, and 20% has shut down permanently.How much more ‘demand destruction’ can American industry
provide? And how permanent is it? And of course the underlying demand for
products like fertilizer and plastic doesn’t really go away, manufacture just
gets sent abroad, and the
US
then has to import it, with further unpleasant consequences for jobs and trade
imbalances.
Writing on the Wall
As the day wore on, one
could almost see Jimmy Carter’s famous cardigan being lowered over Abraham’s
neck, like Damocles’ sword. Behind the cardigan, the writing is on the wall.
Sooner or later, and possibly in the next few months, the unthinkable is going
to happen: America is going to be forced to use less natural gas, just as it
was forced to use less oil after 1973 – but this time it won’t be geopolitics
but geology in the driving seat.
But unlike oil in the 70s,
it will, as noted, be much harder and more expensive for
America
to increase gas imports. Greatly reducing absolute consumption of energy by
not being so wasteful, and radically increasing renewables, are not real
options, since the “American way” is not up for negotiation. Not voluntarily
anyway.
America
lost its last traces of parsimony after World War II. The renewables business
is decades behind where it would need to be to make much difference.
The morals of this story
are as momentous as they are various, but strangely, as of this writing, more
than two weeks after the Summit, the DOE is apparently not putting out its own
report on the event’s findings. This article may help to fill that void. This
gas crisis should send a shockwave through energy-addicted countries like
Britain, that are about to lose their energy independence, and send a message
to all over-consuming countries, that rely upon a staggering and totally
unsustainable intake of energy to fuel the vehicle of industrial consumer
capitalism. It should be telling us that there are, after all, ‘limits to
growth’, that sustainable development (which really means sustainable growth)
is an oxymoronic nonsense.
It should make clear that
oil wars will soon be joined by gas wars, unless the present path is averted.
To the world’s mainly poor
‘producers’ of non-renewable, depleting petroleum resources, it should send a
last warning to start limiting production now, and charging much, much more.
For example, to take one of the few rich producers, why should
Canada
subsidise
US
economic imperialism and its continuing military attacks with cheap gas and
oil and refined products? Some of that petroleum may even have gone into the
planes that killed four Canadians in
Afghanistan,
and many innocent Afghanis besides, not to mention Iraqis, Colombians, and
soon no doubt Nigerians, Algerians, Angolans, and perhaps Iranians.
Most of all, it should also
be a call to those millions of good-hearted, generous Americans who genuinely
loathe what is being done in their names, who would like to get off the
petroleum addiction, but who realize that the system and the infrastructure,
of which we are nearly all a part, make that largely impossible.
The call for a “massive
public education campaign” is a good idea, but it must go far beyond the very
limited aim of telling people to use less electricity this summer. Somehow it
must tell, and convince, enough Americans about what is really going on.
The
US
is not looking at an isolated rerun of the 1970s, nor even a scaled-up version
of the California phenomenon. This is the big one. Since the new millennium,
America
has only escaped a catastrophic gas crisis because of
Ladyfern and lady luck. Ladyfern has all
but run out, and maybe luck is about to as well.
Endnotes
Additional Information
- Julian Darley’s June 17th 2003
CSIS presentation on the natural gas crisis “When Crunch Becomes Crisis” is
available in several formats from the Post Carbon Institute < www.postcarbon.org
>.
- Post Carbon Institute is working to find serious and practical ways
of living without hydrocarbons.
- Julian Darley is working on a book about the North American natural
gas crisis (along with global oil peak) and its implications and possible
responses.
- Video and audio interviews with world authorities on oil and natural
gas peak can be found at GlobalPublicMedia < www.globalpublicmedia.com >.
- Julian Darley’s biography can be found at
< www.juliandarley.com >.
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