Tuesday, April 13, 2010

The Coming Oil Shortage?

It hasn't received much play on this side of the Atlantic (oddly enough), but the U.S. military is warning of a severe oil shortage by 2015.

According to a new study produced by Norfolk-based Joint Forces Command (JFCOM), the current surplus in oil production could evaporate within two years, leading to potentially crippling shortages by the middle of this decade.

The U.K. Guardian reports the assessment was forwarded by JFCOM's Commander, Marine Corps General James Mattis. His signature underscores the importance of the study, since a MAJCOM commander typically doesn't "sign out" all intel reports produced by his organization.
JFCOM analysts believe the global shortage will mushroom quickly, reaching 10 million barrels a day within three years after "peak oil"--the moment when demand permanently exceeds supply.

The consequences of the shortfall would be devastating. As outlined in the JFCOM study:

"While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India."

While the report doesn't address the potential impact on the United States, you don't need to be an energy analyst to understand that $200 a barrel oil would crush any hopes of an economic recovery and severely impact our military--the largest "single" user of energy in the world.

Still, a cautionary note (or two) is in order. While JFCOM strives to provide an "intellectual foundation" for joint force development, the command's expertise in energy intelligence is limited. Meanwhile, the intel community's experts in such matters (based at the CIA and Department of Energy) have either remained silent--at least publicly--or they offer a more optimistic scenario.

Lionel Badal, a researcher in peak oil theories at King's College in London, told the Guardian that DOE's Energy Information Administration (EIA) has been saying that "peak oil" is still decades away. In light of the JFCOM report, he wonders if DOE is sticking with its rosy scenario.

The military assessment was released as oil surged past $100 a barrel in Great Britain, and retail gasoline prices are approaching $3.00 a gallon in much of the United States. During the shortage that followed Hurricane Katrina in 2005, gas climbed to more than $4.00 a gallon in the U.S.; that level is widely considered a "tipping point," when the public demands action to increase supplies.

Unfortunately, there may be little the United States can do to bolster supplies in the current regulatory environment. President Obama recently approved off-shore drilling along portions of the east coast, but the rest of our coastline (and much of Alaska) remains off-limits. Additionally, environmental challenges often delay the opening of new fields for years.

In an unguarded moment on the campaign trail, then-candidate Barack Obama said his only real regret about $4.00 gasoline was that prices reached that level "so quickly." Based on that statement, it stands to reason that some in the administration see much higher energy prices as inevitable--a development that could be used to spur the development of alternative fuels. Never mind that so-called green fuels can't meet our needs for decades to come.
ADDENDUM: The JFCOM study is merely the latest to warn of a coming oil shortage. The Guardian reports that the U.K. Energy Minister convened a meeting with top industrialists two weeks ago, apparently reversing his previous position that peak oil was not a short-term problem. Officials at the Paris-based International Energy Agency have voiced similar concerns, though the organization has (officially) stated that energy supplies will remain sufficient.

It's also worth noting that General Mattis, the commander who put his signature on the controversial report, has a reputation for being blunt--sometimes a little too blunt, as evidenced by his famous remarks about how much "fun" it is to shoot terrorists. This time around, Mattis seems appears willing to stake his reputation and credibility on the report, which goes against the "official" U.S. government position on the issue. If no one else is willing to sound the alarm, Jim Mattis has no qualms about stepping up to the plate.


lgude said...

Well, I'm more inclined to believe a Marine corps general known for bluntness who could have just pushed the paper along over a regular bureaucrat.

Unknown said...

The only "shortage" is caused by the traders at Morgan Stanley and Goldman Sachs. This bubble has been coming for some time. They engage in an illegal practice called wash trading. "Oh, we at GS see oil at $90.00 a bbl" - that's on Tuesday, then on Thursday the traders at MS say they see oil at $110 a bbl. This kind of market manipulation lifts all boats and when the demand falters, the prices drop. If you could eliminate these guys and the eviro-whackos from the left, there would be plenty of oil right here in the USofA for us to be self-sufficient for about another 125 years and even longer if the tar sands were developed in the Dakotas and Utah.

Just My 2¢ said...

Here's the inside story. I'm a petroleum engineer that has spent 30 years drilling for, and producing crude oil and natural gas. The last big oil discoveries: Alaska North Slope, the North Sea, the big Gulf of Mexico fields, and the big Middle Eastern fields were all discovered in the 1960s and 1970s. They are long past their peak production and we have not discovered their like since then.

Short term oil prices are very "inelastic" as economists use the word. When there is even a very slight surplus, oil prices dive. When supplies get a bit tight, prices skyrocket because people are willing to bid very high to get their supply.

"Peak Oil" is a phrase that is terribly misused, but the idea is sound. We aren't going to find new oil supplies at the rate we use them up - unless we continue to make revolutionary improvements in technology. We have been in the business since 1880 and the low hanging fruit is already gone.

chrisale said...

I don't agree with much that is posted on the website. But I am very glad to see you take this report at face value.

I wish the North American MSM (I'm Canadian, so my media is definitely included) would stop ignoring this obvious and growing problem.

It's worth noting also that the US DOD has been at the forefront of ringing this alarm bell for many years.

There is this report. But also the previous JFCOM in 2008 had the same warnings nearly word-for-word.

And before that the US Army Corps of Engineers released a report called "Energy Trends and Their Implications for U.S. Army Installations" in 2005.

So the really sad thing is, as we continue to hit our economic heads on the oil ceiling and uselessly blame everyone but ourselves, the fact of the matter is many very influencial groups and people, including the US Military itself, has been warning of this for a very long time.

Long enough to have made a difference.

Personally. I think it's too late. We are at the top of the roller coaster and I'm about to close my eyes as we head down the steepest slope.

sykes.1 said...

One of the purposes of the Greater East Asia Co-Prosperity Sphere was to secure Indonesian oil for Japan. WW III is coming, and it will be nuclear. Afterwards, we won't need oil.

chrisale said...


If that was the case then they didn't plan very well. Indonesia has been a net oil importer since 2005.

It is clear to me that the great powers of the world are still very much in "jockey" mode.

The US in the Middle East. China in Africa. Europe begging with Russia.

Until that attitude changes the only possible outcome from prolonged oil shortage is war. And that 11.9% economic growth in China isn't helping!