Peak Oil and the Political Economy of Terrorism

The Baltimore Chronicle

By Mathew Maavak
April 24, 2006

Wars are dictated by the primacy of economics, while ideologies serve to rouse the masses.

Crude oil has breached the $70 psychological barrier again. This time, however, it will not be a one-day seduction by the stormy Katrina.

The causative culprits are aplenty.

Terrorists have taken out 25 per cent of Nigeria's sweet crude since late February, and the daily joust between Washington and Tehran is providing splendid returns to those who had invested in oil stocks. For these savvy investors, there will be enough gas in the tank during the peak summer driving season.

Then there is that 10.2 per cent growth registered by China, announced very conveniently before President Hu Jintao's scheduled meeting with his US counterpart George W. Bush. China's booming growth can only be greased by a harder-to-pump oil. The alternatives are stark. If the Chinese bubble gets pricked, the global economy suffers, US corporations may need higher tax cuts—or even subsidies—and Americans will finally need to trim their bellies.

That would be Hu's sales pitch but Bush may opt for a more risky oil prospecting venture. This time, the failed former Texan oilman may succeed, and ignite enough fires in an energy-strained world.

It is high noon for those prospecting for maximum oil returns. Even the types not usually associated with Wall Street, rocket science and deficit spending are glued to Bloomberg's running crude oil tickers by the minute.

The objective is the lucky strike. Peak Oil is forming a strategic fit with Peak Terrorism.
For a synoptic glimpse into the future, read this excerpt from New York Times' April 16 article headlined "Blood and Oil":

Just as things seemed to be calming down in the delta region of Nigeria after a spate of kidnappings and insurgent attacks, the militant group calling itself the Movement for the Emancipation of the Niger Delta—MEND—announced last week to all who would listen that it was planning new violence against oil facilities in the region. Apparently unconcerned about tipping its hand to the authorities, MEND even gave a date for the start of its new campaign: April 25.

That date is perfect! These guys are more financially savvy than stuffed suits who have hedged their future in a world where oil never existed. D-Day in the Niger Delta is just 72-odd hours before the UN Security Council meets to unleash a little fission over Iran's nuclear enrichment program.Crude oil at $80 per barrel on April 28? Who knows?

If a rag-tag bunch of militants in Nigeria are accurately reading the tea leaves in an oil-brimmed cup, imagine what Al Qaeda and the pan-global martyrs of terror have in store.

There is a greater lead-filled premium now for oil-related and economic targets. In a business-speak twist, collateral damage can be applied to the unlucky rejects in a fire-sale transaction.
You can bet your every last dime that terrorists are ready to throw their explosive spanners into the machineries of global trade. They know the drill. There is tremendous potential here to cause pandemonium and cross-border tensions. Targeting energy infrastructures will be far more efficacious and less opprobrious than the indiscriminate slaughter of civilians.

Why assassinate politicians or shoot a GI when mobs—deprived of their daily bread—can do more in aggregates and derivatives? In layman's terms, we are talking about riots, sit-downs, union strikes, looted stores and political mayhem. Economic targets offer the best returns with fewer risks. Stock markets will be depressed, inflation will set in, bankruptcies will proliferate, and people will starve.

The concatenation of financially-induced social upheavals has been witnessed before—across continents—during the currency crisis of the late 90s. Unless checked, wars are the inevitable culmination. There are no IMF prescriptions for dwindling oil reserves, busted pipelines and electricity blackouts.

Call this the political economy of terrorism, but apart from Iraq and Palestine, terrorists will increasingly focus on the conveyor belts of finance and trade. There is no shortage of targets for disgruntled elements worldwide. There are Maoist guerillas in Nepal, ethnic insurgents in Burma, Al Qaeda-inspired militants in Islamic nations and assorted purveyors of violence in every nook and corner where there are power plants, ports, retail stores, trading depots, factories, banks and transborder pipelines. Mundane industrial structures—particularly those connected to oil—have attained more value-added targeting than shoppers at a marketplace. A suicide bomber might as well "walk the last walk" into a minor, provincial bank than into a crowded souk. Planting midnight bombs at ATMs in a major city entails little or no bloodshed, though it may douse seasonal fire sales the next morning, not to mention the lack of change for lunch. (Ever noticed the anticipatory or frustrated month-end file of workers at ATM kiosks short on notes?)

A little inconvenience can go a long way in disrupting normal routine, and no nation can provide complete protection for these mundane cogs of human activity.

Terrorists switching to the political economy side of their trade can expect other windfalls. Destroying the perceived icons of (Western) imperialism elicit less disgust—and perhaps sympathy—than the televised butchering of individuals. Suicide bombings that shred innocent limbs at a discotheque and net relayed beheadings of infidels reek of bestiality. Why kill a Daniel Pearl when you can play Che Guevara?

But is this happening?

There were strong hints emerging since February.

The Niger Delta attacks offlined production amounting to 550,000 barrels per day, rendering the affected Royal Dutch Shell installations immobile till today. What was untouched was probably left for April 25. Almost simultaneously, violent protests in the Ecuadorian province of Napo forced state oil firm Petroecuador to halt supplies through its Trans-Ecuadorean pipeline.

Both incidents raised US crude oil futures by $1 overnight. The price has since risen by more than $10 dollars—a safe median figure used by commentators without an MSNBC or Bloomberg ticker on their offline notebooks.

In Iraq, while bombs routinely kill civilians, little has been noted of pipeline sabotages stretching from Kirkuk to Bayji to the Turkish border. Restoring normal output may take up to a year.

And that's a big hypothetical "if" with Iraq in a state of disintegration. Think of the hundreds of thousands of miles of exposed pipelines around the world, and the cumulative number of years needed to repair them. If Iraq's oil and its pipelines can energize the current sectarian war, couldn't that be replicated in places simmering with ethnic and social tensions? Expect authoritarian governments to manufacture terrorism for the perpetuation of power. If you regard the USA PATRIOT Act as draconian, you haven't seen the world yet!

Any bomb anywhere can be pinned on "terrorists" and sifting the real from the manufactured would be next to impossible with censorship laws established to prevent the transmission of coded communications. Sounds familiar?

It would pose no barrier to the Real McCoys, however. Terrorists - separated by ethnic, ideological and religious motivations but united by calculated anarchy - have learnt their economic primers on the go. It is the most potent weapon in this age of Peak Oil.

Neither the brotherhoods of anarchy nor coded messages are needed to set action time. The daily business headlines will do.

In Sync

While oil traders were still risk managing the outage from Ecuador and the Niger Delta, militants in Saudi Arabia attempted to blow up the world's largest oil processing complex in Abqaiq on Feb 24. If they had succeeded, there would have been a double digit increase in the price of crude in 48 hours. It could have also precipitated social anarchy in a land seething with repressed anger against the Al Saud monarchy. Under such a scenario, repair works at Abqaiq would be next to impossible, oil would shoot to above $100 per barrel, and a vortex of violence would spiral to engulf much of the world. Remember, society is only three meals away from anarchy.

As tensions rise by the day over Iran's nuclear enrichment program—and it's not only Iran—pipelines and economic targets are easier pickings vis à vis heavily-guarded political, military and constabulary bastions. Call this risk management on both sides. Governments will prioritize security for the levers of governance and power; terrorists will probe and prioritize valuable, less-guarded targets to trap security apparatuses in a game of musical chairs. This will leave a gap for political targets sooner or later. It's an old trick with new destructive possibilities in a world peaked of oil.

Terrorists can also conflate ideological mileage with financial aggrandizement. This was demonstrated during the days leading up to the Sept 11 attacks. Unusually heavy transactions were noted on airline stocks in the hours and days leading up to the fateful incident. The yet-to-be-proven suspects were Osama bin Laden and Al Qaeda. This gives a new twist to the maligned practice of "insider trading," and it ingeniously raises capital for further terrorist ventures. Non-ideological players like organized criminal gangs and state actors would have taken note. Each day, violent arts permeate our airwaves, are regurgitated on news clips, and are headlined on our dailies. The real dangers of terrorism can be manipulated and faked by the religious devotees of Mammon, and blame can fly in all directions.

Terrorists, after all, are the dernier cri bogeyman of our times. They can—advertently or not—create political and financial capital for powerful entities. The terrorism shill also provides a Trojan Horse for state actors to destabilize a hostile nation. In this high-octane world of dwindling mineral resources, "terrorism" might be the spark—and later a sideshow—for outright inter-state conflict. Wars are dictated by the primacy of economics, while ideologies serve to rouse the masses.

The most tindery powder keg right now is Iran. It's not just hedge fund managers and investment gurus who are bracing for the worst, or the best, depending on one's philosophy. There is money here for Armani-clad entrepreneurs and coups de grace for ski-masked individuals.

If Iran burns, or if neighboring Iraq descends further into anarchy, expect scattered strikes against oil installations, ports and power plants the world over. There will be more trouble in Nigeria and Ecuador. Hotspots will get hotter with conflicts spreading far and wide. With so much happening, renewed conflict in little-known Chad—among the five poorest nations in the world but one with a billion in crude reserves—may not blip on our media radar.

The Ides of March have passed and it has left us with bad omens for the coming months. The game of energy geopolitics is taking new turns and uncertainties, including the option of a tactical nuke attack on Iran's Natanz, Isfahan, and Bushehr complexes. If Iran gets hit, the anti-American Venezuelan President Hugo Chavez may deliberately divert oil supplies to nations like China, depriving the US of 15 per cent of its oil imports.

There are other, albeit highly unlikely, variants to this game.

Al Qaeda may bomb targets within Iran, and blame it on the United States, or it could sink a few tankers in the Straits of Hormuz and blame it on the Persians. Neither the United States nor Iran need to fight in a best-case scenario—if an extraneous culprit can be identified and a standoff reached in time. A Straits of Hormuz blocked by sunken tankers either way will immediately reduce global oil supplies by 20-25 per cent per day. Perhaps more, depending on which estimates you have been reading.

The United States, after all, has the largest strategic petroleum stockpile in the world, and its powers would be aggrandized through this energy buffer. Is that good news? Well, should US soldiers die in a Middle East artificially contrived and subverted by Britain? Cut a deal with Tehran! After all, Iran might have been a US partner today if not for Winston Churchill. The CIA only stepped in later, in 1953. The tussle started over the Anglo-Persian Oil Company, which no longer exists by that name, but the bone of contention has gone on to include tactical nukes.

Like changed names, the United Kingdom's role in global subversion has been well-masked by Uncle Sam's schoolboy misadventures.

Trust the Brits to ramp up their global terror machine again and expect Uncle Sam to receive the annual rogue superpower award. Expect a scramble for oil worldwide, providing targets of opportunities to militants, criminals, and state-sponsored terrorists. When this happens, the current national and international structures would be blown out of shape.

Within this nightmare world, ordinary folks would gladly welcome some order, or a New World Order. That plan was readied long back—lock, stock and barrel. Long before the United States of America came into being!

Welcome to the year when the artifice of civilization begins its slide into a natural state of barbarity.

http://baltimorechronicle.com/2006/042406Maavak.shtml

Gas Breaks the $3 Barrier

Sacromento Bee

By Dale Kasler
April 21, 2006

Prices are near September record, with no relief near.

The dreaded $3 gallon of gas became reality across California on Thursday.

The statewide average price jumped 3 cents to $3.02 for a gallon of self-serve regular, the highest it's been since the post-Hurricane Katrina gas crisis, according to AAA. That's within 3 cents of the record set last September.

Sacramentans were paying $2.90 a gallon. Motorists were paying an average of $3.12 for self-serve regular in Santa Barbara, a record for the city and the highest among the 25 metropolitan areas surveyed daily by AAA.

Prices are expected to continue rising, although it's not clear when and where they'll peak. Oil prices have shot up because of violence in Nigeria and the possibility of war in Iran. On Thursday, after briefly hitting a record $72.49 a barrel, prices eased off after Shell announced it will resume oil production in late May at a key facility that was damaged by Katrina.

Oil closed at $71.95, down 22 cents, on the New York Mercantile Exchange.

Even with that lull in crude costs, analysts expect gas prices to keep going up for the foreseeable future. A nationwide shortage of refining capacity will put upward pressure on gas prices even if crude prices fall. Gas prices will likely peak in late spring or early summer.

Rising energy prices are making economists increasingly nervous. Last fall, when prices shot up after Katrina, economic output slowed down across the United States.

The latest spike "is certainly not a recession-making event, but it could have an effect on some industries in California," said Howard Roth, the state's chief economist.

Among them is tourism.

"Absolutely. Everything from airline fuel to Mom and Pop taking the kids on vacation," said Gary Carr of PKF Consulting, a hospitality consulting firm.

But Sean Comey, spokesman for AAA of Northern California, said he thinks tourism will hold up pretty well. While gas price spikes do prompt motorists to conserve somewhat, it's unlikely that Californians will cancel their vacation plans, he said.

"Most people, despite the high gas prices, tend to think a driving vacation is a good value," he said.

Meanwhile, farmers are feeling the effects.

"It's huge, it's absolutely huge," said Joe Martinez, a Yolo County almond farmer whose diesel fuel costs are increasing. Diesel hit $3.05 in Yolo on Thursday.

Martinez, president of the county Farm Bureau, said higher oil prices will also mean costlier fertilizer, plastic piping and other inputs. "Farmers have to eat any increased costs," he said.

http://www.sacbee.com/content/business/story/14246095p-15064038c.html

The Peak Oil Crisis: Politics After the Peak

Falls Church News-Press

By Tom Whipple
April 20, 2006

There is little doubt the effects of peak oil will someday soon radically change the political landscape in America—and nearly everywhere else for that matter. It is still a little too early to say when oil depletion will start appearing in political equations. If we have a particularly bad summer as some suggest, then "gas prices" could feature prominently in our November 2006 mid-term elections. If predictions of peaking within the next couple of years are correct, then energy policy likely will be a major factor in the 2008 presidential election. If peaking slips a bit then it is almost certain that the 2012 and 2016 elections will be fought over nothing else.

From the vantage of April 2006, it would be folly to speculate on the details of elections taking place months or years from now. A new "Peak Oil Party" could emerge to lead us out of the darkness (literally) or the same old Republicans and Democrats, retooled for the post-oil era, could compete for our votes. America could emerge from a decade or two of converting to new lifestyles as a new and stronger democracy, or the demise of the oil age could be too much of a strain for our current political arrangements. However, there is a lot of recorded history around for insight and human nature being human nature, a few general observations might be in order.

One of the most disturbing things I have read recently pointed out how hard it is for people to radically change a way of life. The writer noted how in 1860 when the South was threatened by abolition, an entire generation picked up arms and marched off to endure terrible sufferings in order to protect a way of life from which few benefited directly.

Equally disturbing is how a significant portion the German middle class embraced the Nazi Party after their economic well-being was wiped out by hyperinflation.

Given the love affair that Americans, and everybody else in the world that can afford one, have with cars, giving them up is going to be the collective trauma of a lifetime. Polls tell us a vast majority of car owners say they will drive to their last dollar or until there simply is no choice.

From a political point of view, such a strong emotional and lifestyle attachment is fertile ground for demagoguery. The Congress already has summoned the oil executives to lecture them before the cameras about high gasoline prices. Various states have passed anti-price gouging bills to make it look as if they are doing something. The administration has declared an "Advanced Energy Initiative" which throws a few million dollars at a problem that will require trillions. The trivial increases in CAFÉ standards for SUVs will someday appear as laughable as battling an ocean with a sword.

We are starting to see scattered instances of peak oil tax demagoguery. At a time when government should be rapidly increasing energy taxes to slow consumption, some politicians are calling for the elimination of gas taxes so their hard-working constituents can afford to drive as they wish. At a time when gasoline prices will soon be thought of in round dollars —$3, $4, $5 gas— rather than cents, eliminating a few pennies of tax will soon be recognized as pointless.

The ultimate absurdity will be the price cap. If anyone wants to bring transportation in a country to a complete halt, simply decree that motor fuel can't be sold for more than "X." Osama Bin Laden couldn't come up with a better idea if he tried.

As some point however, the silly season will end, the body politic will come to recognize that hearings, tax cuts, price caps, and drilling in national parks are not the remedy for peak oil. Whenever that day comes, congressmen, legislators and governments will start look for real solutions: massive conservation and a transition to sustainable fuels and lifestyles. The real question then is whether this will happen soon enough to avoid causing damage that will set the transition back many years and increase the hardships. Will an administration —the current, the next or the one after that— have a change of heart mid-term, or will an election have to be fought over remedies for peak oil first?

Any poll taken today will show Americans are worried about "dependence on foreign oil" but are not yet ready for hardships, such as serious reductions in driving to achieve this goal. For an administration committed to not rocking the boat while tossing in a sea of other troubles, it probably will take a mega-development in the oil production world that quickly spikes gasoline prices into the $6-$7 range to force a change.

The bellwether for change will be the imposition of a strictly enforced nationwide 55 mph speed limit. Until such an inexpensive and effective oil conservation measure is passed, our politicians are still listening to the call of a bygone age rather than preparing us for the next.

Before the oil age comes to a complete close, let's hope someone rehabilitates Jimmy Carter as one of the most prescient Presidents ever to hold the office. Congress might even rename an airport for him— just before it is shut down forever.

http://www.fcnp.com/607/peakoil.htm

The Peak Oil Crisis: It's Time to Start Planning

Falls Church News-Press

By Tom Whipple
April 13, 2006

Let's start with the completely obvious. We are no longer living in the 19th century. Seventy percent of Americans no longer live on farms as they did when the first oil well was drilled (it now is more like 2-3 percent). Very few have transportation pastured behind the house. Nor do many have a chicken coop, a wood lot, a vegetable garden or a place to hunt for food. Somewhere along the line, the 20th century with its abundance of oil got in the way of self-sufficiency and everything changed.

Very, very, few of us are, or could be, anywhere near self-sufficient in the 21st century. Oil has created a very specialized society in which the essentials of life —food, clothing, shelter— come to us through a complex social and economic chain involving thousands of people each performing specialized tasks.

The whole system sustaining our lives is bound together by oil. It is the cheap freely available oil that has allowed us to move ourselves and our goods around cheaply, quickly, and efficiently. Specialized highly efficient production has of course resulted, for many, in a golden age, a cornucopia. Take away the oil, or simply raise the price high enough, and the social/economic order starts to come apart rapidly. Then what?

The answer is obvious. We in America , and indeed in many other countries, will turn to government to organize a solution. Which government? All of them. Every level from village council to presidents and prime ministers will be overwhelmed by the need to take action. Needs will be enormous, compared to anything we have known in recent years.

If anybody doubts this assertion, just ponder for a minute, one or two of the many changes that took place during the oil age. On the average we got a lot older. There are currently about 40 million of us over 65 years old in the United States and nearly 20 million over 75. If anybody thinks the average octogenarian is going to jump on a bicycle and pedal 20 miles over to the Wal-Mart to pick up supper, they're wrong — it just won't happen. Most of us are going to need help to get through the transition to a post carbon world. Life threatening situations will abound.

In addition to the elderly, there are other problems such as the 2 million people currently locked up in some jail or prison. What's the warden or the state governor going to do when the guards can no longer afford to drive in for their shifts, the electricity goes out as part of a rolling blackout, and kitchen manager reports he can no longer get enough food delivered for three square meals a day? There are endless scenarios, but by now you should be getting the picture. By a wide margin, the peak oil crisis will be one of the biggest problems governments have had to face in the modern era.

As oil depletion sets in, we are going to see dozens, then hundreds, then thousands, and ultimately 300 million (population of the US ) new problems show up which clearly will be beyond the means of our current social/economic system. Just imagine the New Orleans flood engulfing the whole country at once to get some sort of feel for what things might be like.

Where to start? The answer to this one is easy. Governments at all levels must start planning, planning, planning for what clearly is to come — be it in five months or five years. What should they plan for? Here the details are difficult but the general concept is rather straightforward. Let’s look at state and local governments today for the federal response to peak oil is a whole other story.

Before a state or local government can help its citizens, it must first ensure that it can function. Then it must ensure it has sufficient authority and resources to do whatever is necessary in the decades when the effects of peak oil will be the worst. Although there will be endless debates over the government's role during the decades of transition to a post-oil world, I believe protecting life and maintaining civil order come first, followed by helping new economic arrangements emerge.

The number one planning objective for any level of government is to prepare for a sudden and long-lasting reduction in the availability of oil. There are presently numerous situations festering in the world ranging from giant-hurricane spawning temperatures in the Gulf of Mexico to numerous militant or terrorist organizations and governments that are working at shutting down substantial portions of the world's oil supply.

Thus plan #1 should focus on a government's ability to function. Can a government's employees get to where they are needed? Is there sufficient fuel for government vehicles? Is there enough money to pay for the fuel and likely increases in activity? What happens to tax revenue?

Then there is a question of authority. Can a government prioritize the distribution of limited fuel, or even food stocks? Can it institute rationing, conservation measures, impose fuel-saving speed limits, mandate car pools? Clearly a high priority should be given to preparing a package of emergency powers for governors and local councils.

Beyond the initial need to develop the organization to maintain life, civil order, and the distribution of vital goods and services, there will be a need for government in establishing extensive new systems of mass transit. If, as most expect, there will be very serious economic disorders, we start to raise issues of government as the employer or provider of last resort.

An argument can and will be made that the government should stay out of all this. Let prices rise and market forces alone will do the necessary allocations. There is no question that such policies would quickly devolve into widespread and unacceptable life-threatening situations comparable to evacuating yourself from the New Orleans flood without a car.

For now, planning is cheap. One day soon the implementation of these plans will be very costly.

http://www.fcnp.com/606/peakoil.htm

Oil prices likely to surge to new record highs

Reuters

By Randy Fabi

LONDON - An influx of fresh fund buying and geopolitical worries will most likely push oil prices to new record highs soon, analysts said on Tuesday, while the most bullish predicted prices to eventually climb to $100 a barrel.

Supply concerns in Nigeria, Iran and other key oil-producing countries have ignited U.S. crude prices, up 13 percent this year and within $2 of the all-time record high of $70.85, reached in late August 2005 in the wake of hurricane damage in the United States.

Analysts predicted the market to rally even further as high oil prices have failed to reduce global demand.


"It is pretty clear that we can break $70 without too much problem," said Deborah White, an analyst at SG CIB Commodities in Paris.

"We have been getting a massive injection (of investment fund money) in the commodity markets. It is very clear from the price action that they haven't stopped."

Analysts said prices could peak at around $80 a barrel, a level that matches inflation-adjusted prices set after the 1979 Iranian revolution.

Twenty-seven years later, the market is again focused on the Middle East country as Tehran battles with the West over its nuclear program.

"Even without a possible Iranian oil disruption, we could go to $75 to $80 a barrel," said Olivier Jakob of Swiss-based Petromatrix, an oil analysis group.

To stay at those levels, Iran or some other major oil-producing nation would have to cut oil supplies, analysts said. This would then prompt the International Energy Agency to release emergency government reserves to keep markets from spiking even further.

Ian Henderson, fund manager at JP Morgan Fleming in London, took an even more bullish stance, saying prices would continue to climb as long as demand stayed strong.

"The ultimate deterrent for the market is when the price becomes too expensive for people to fill their tanks," he said.

"I think they will continue to carry out their travel plans even with oil prices as high as $100 a barrel. I personally wouldn't stop driving."


A POWERLESS CARTEL

Analysts agreed that OPEC, the source of more than a third of the world's oil, would be of little help in a crisis.

The cartel, which is already pumping at near-maximum capacity, has repeatedly said it wants oil between the upper $50 to lower $60 range.

"OPEC can make all the statements that they want, but they really can't do anything," Jakob said.

But some analysts warned that the market could just as easily plummet.

"The current rally is crucially linked to whether the intensity of the current news flow can be maintained, particularly given the health of fundamentals in (the second quarter)," said BNP Paribas in a research note.

The IEA has repeatedly said world markets are well-supplied and that other OPEC producers have filled the Nigerian shortfall, now at around 500,000 barrels per day.

In February, prices fell by more than $11 in about two weeks after a huge rise in U.S. fuel stocks and a slight easing of geopolitical tensions.

"The rapid fall in the oil price in the first half of February should remind the market how compelling fundamentals can also prove at times," BNP Paribas said.

http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyid=2006-04-14T021501Z_01_SCH408042_RTRUKOC_0_US-ANALYSIS-OIL.xml

Saudi's Can't Sate World

AP

By Jim Krane
April 4, 2006

The world's only oil superpower boosted output last month, starting a pair of projects that are part of a massive $55 billion endeavor to keep pace with the world's ever-intensifying thirst for oil.

But demand for the world's premiere source of energy is rising so fast, by about 2 million barrels per day each year, that even Saudi Arabia's vast resources will be unable to cope without drastic help, oil executives and analysts say.

Even Saudis, who control about a quarter of the world's known oil, are calling for relief from relentless consumption.

"The current out-of-control demand is not good for us," said Ghazi Al-Rawi, head of private equity at Gulf One Investment Bank, in a recent interview. "When you have this kind of demand, you're forced to supply beyond the optimal rate."

Most urgently needed is energy conservation, especially in the United States, which now burns up a quarter of the oil sold to the world, said Saddad al-Husseini, the former head of production at state-owned Saudi Aramco.

Also critical is the development of fuels from oil-rich sands or natural gas that can serve as substitutes for oil. Other producing countries, especially OPEC's No. 2 and 3 leaders Iran and Iraq, could ease the crunch by increasing exports to handle a greater share of the surging demand in China and India, Saudi experts said.

"We need some help," said Nawaf Obaid, a Saudi petroleum adviser with close ties to the government.

If such help doesn't materialize and Saudi Arabia maxes its output -- cranking out perhaps 35 percent more oil than it does today -- the kingdom's proven reserves might only sustain those gushing flows for a couple of decades before starting to dwindle, al-Husseini said.

Can global consumers "afford to keep increasing demand by almost 2 million barrels a day each year? Is it Saudi Arabia's role to meet that demand?" asked al-Husseini, who retired in 2004 after working 32 years in the kingdom's oil sector. "You're leading yourself to having to find an alternative source of energy very quickly."

Few analysts think oil is about to run out. But experts differ on whether the current soaring oil demand will outstrip current supplies, and how quickly.

Many blame today's tight market on 20 years of low oil prices that stifled investment in new wells, refining and exports.

Keeping prices high is the best way to meet demand in the next decade or two, said Leonardo Maugeri, an executive with the Italian energy company Eni. High prices give investors incentive to spend the billions needed to increase oil production and develop other fuels, Maugeri wrote in the current issue of Foreign Affairs.

But Maugeri also wrote that it takes six to eight years for oil from a new well to reach consumers. Developing oil sands or natural gas-based diesel fuel is even slower and more expensive.

Saudis worry that consumer demand could overwhelm the slow progress in bringing new energies to market. "If this continues, you'll have demand outstripping supply over the next five years by a wide margin," said Obaid.

Others, such as Sharif Ghalib of Energy Intelligence Research in New York, say the world's cushion of excess oil production capacity -- a safety margin that keeps a lid on prices -- is so low that demand could outstrip supplies now. All it would take is a single oil producer going off-line for any reason.

"The crunch is already here. It's not five years down the road," Ghalib said. "There is no thought being given in the U.S. to raising gasoline taxes or increasing mileage on U.S. cars. In China, automobile use is skyrocketing."

For now, Saudi Arabia is bent on meeting this demand by drilling wells and laying pipe.
In March, state-owned Saudi Aramco and Japan's Sumitomo Chemical broke ground on a $10 billion oil refinery and petrochemical plant that will be one of the world's largest when finished in 2008.

The refinery, one of two planned in the kingdom, is aimed at opening bottlenecks on delivery of refined products such as gasoline and diesel. The plant will increase Saudi Arabia's output because it can refine heavy sulfurous crude that the kingdom can't sell now.

Saudi Arabia and its partners plan to invest a further $28 billion in three more huge refineries, in China, India and Texas, Obaid said.

Also last month, Saudi Arabia began opening valves on a 300,000 barrel-per-day expansion in output from the world's largest oilfield. By summer, the full flow of the oil is planned to be under way.

These are just the latest installments of what experts describe as the world's largest oil expansion effort, which will increase Saudi Arabia's output capacity by 2009 by almost 14 percent -- from 11 million to 12.5 million barrels per day.

If demand warrants, the Petroleum Ministry could decide to invest an additional $8.5 billion in a further increase of 800,000 barrels a day by 2013, bringing sustainable capacity to 13.05 million barrels a day, Obaid said.

Ali al-Naimi, the Saudi oil minister, has said the kingdom could reach and sustain 15 million barrels per day in output if needed.

But even leaping to those frantic levels won't satisfy rising world demand for long, analysts say.
"The Saudis can't do it alone," said Ehsan Ul-Haq, chief analyst of Vienna-based energy broker PVM Oil Associates.

And pumping at 15 million barrels a day, the lifespan of Saudi's 260 billion barrels of proven oil reserves would be shortened by 30 percent, with output dwindling about two decades from now.

The kingdom has already used up 100 billion barrels. Production typically declines when a country has produced half of its reserves. That's 180 billion barrels in Saudi Arabia's case, al-Husseini said.

"If instead of reliable oil production lasting 20 years, it were to last for 40 years, then we would all be ahead," he said. "That's why there is a need to supplement conventional oil with other sources of energy."

http://www.newsobserver.com/104/story/425050.html