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Schlesinger on energy

James Schlesinger/Washington Times staff
With the price of oil soaring from less than $10 per barrel in 1998 to more than $70 last year, the world oil market is likely to remain quite combustible. Under these circumstances, there is much that can be learned from policy-makers who operated during earlier crises. James Schlesinger, who is chairman of the Advisory Council of the National Interest, is one such policy-maker.

A Harvard Ph.D. economist, Mr. Schlesinger held posts in Republican and Democratic administrations. He is: a former chairman of the Atomic Energy Commission; a former CIA director; a former secretary of defense, who served during the 1973 Mideast war and the devastating Arab oil embargo, which caused the second-worst recession since the Great Depression; and a former secretary of energy, witnessing the unleashing of an oil crisis that precipitated America’s worst recession since the Great Depression. …

So, when Mr. Schlesinger writes an essay about these topics — “Thinking Seriously About Energy and Oil’s Future,” which appears in the winter issue of the National Interest — his views should command the attention of policy-makers around the world. What follows are some of Mr. Schlesinger’s concerns that we found worth repeating:
“The inability readily to expand the supply of oil, given rising demand, will in the future impose a severe economic shock. Inevitably, such a shock will cause political unrest — and could impact political systems.”

Mr. Schlesinger addresses the debate about when the world oil industry will reach Hubbert’s Peak — the moment when half the world’s conventional oil reserves will have been extracted, after which production rates will decline, perhaps steeply. Beginning with the estimate of 3 trillion barrels of conventional oil embedded in the Earth’s crust, Mr. Schlesinger notes that more than 1 trillion barrels have already been extracted. Currently, the world is consuming 30 billion barrels a year, and the Energy Department predicts annual worldwide oil consumption will reach 40 billion barrels by 2025. …

At those levels of consumption, the debate over when we reach Hubbert’s Peak may be beside the point. “The implication is clear,” Mr. Schlesinger declares. “Even present trends are unsustainable. Sometime in the decades ahead, the world will no longer be able to accommodate rising energy demand with increased production of conventional oil.” …

Mr. Schlesinger warns that U.S. policy-makers may be making inappropriate assumptions about the likely availability of oil to meet the world’s soaring demand by 2025. Daily output capacities in 2025 for Saudi Arabia and Kuwait, for example, are assumed to be 25 million barrels and 5 million barrels, respectively. However, the maximum output levels for Saudi Arabia and Kuwait in 2025 are likely to be 15 million barrels and 3 million barrels, Mr. Schlesinger argues.

That poses a vital question: If the world is on track toward consuming 110 million barrels per day in 2025, who will plug the 12-million-barrel supply hole created by overestimating Saudi and Kuwaiti output levels? It’s a question that must soon be answered.
(19 February 2006)

Petroecuador halts oil exports after pipeline shut

Alexandra Valencia, Reuters
Ecuador’s state oil firm Petroecuador on Monday declared force majeure and suspended its crude exports after a violent protest in Napo province forced it to shut down its key SOTE oil pipeline. Petroecuador’s halt on its exports, averaging 144,000 barrels per day (bpd), would go into effect early Tuesday following the closure of its 400,000 bpd Trans-Ecuadorean pipeline after protesters stormed a pumping station to demand more state resources for the poor amazonian province.

The demonstrations were the latest to impact the petroleum industry in Ecuador, which is the region’s fifth largest oil producer with output from state-run Petroecuador and private oil companies averaging around 530,000 barrels per day. “We have declared force majeure and that means exports will be suspended from the first hour of Tuesday,” a Petroecuador spokesman said.

Petroecaudor oil pipeline director Hector Villacreses told Reuters earlier SOTE crude pumping was halted completely because demonstrators invaded the El Salado station and caused serious damage that prevented operations from continuing. He did not give details on how long the company would take to repair the station to the east of Quito. Demonstrators had damaged an electric generation and information equipment. …
(21 February 2006)

Norway firm plans world’s biggest wind park

OSLO – A Norwegian firm has applied for a concession for the world’s biggest wind power development off western Norway with total capacity of 1,500 megawatts produced by hundreds of turbines, it said on Monday.
(21 February 2006)

Gusher of interest in grads who know oil

Laura Heinauer, American-Statesman
Though most petroleum engineers may not look like athletes, they might need to start thinking like them. “I tell these kids as freshmen (that) by the time they get out of here, they’re going to need an agent to negotiate their contracts,” said Tim Taylor, an adjunct professor in charge of recruiting and placement in the department of petroleum and geosystems engineering at the University of Texas.
High oil prices and surging demand for the engineers needed to find it have propelled petroleum engineering salaries to levels seldom seen for students with a four-year degree: Annual salaries for top UT graduates start at $75,000, plus a $20,000 signing bonus.

UT’s undergraduate and graduate petroleum programs are among the best in the nation, according to U.S. News and World Report. Enrollment in those programs has doubled, from about 200 students in 1998 to 408 in 2005-06. Taylor said that before students complete summer internships, which typically pay $5,000 a month, companies will offer jobs or second internships for the next year. By graduation, it’s common for a student to have six or seven job offers. …
(21 February 2006)

Despite controversy, ethanol is in high demand, lifting farm fortunes

Justin Blum, Washington Post

AURORA, S.D. — Past miles of frozen corn and soybean fields and signs warning of crows, a procession of trucks and rail cars ferrying corn kernels is lined up at a plant producing an increasing amount of one of the nation’s hottest alternative fuels.

This sprawling plant is grinding massive amounts of corn and turning it into ethanol — an alcohol-based gasoline additive that was recently touted by President Bush as a way to reduce dependence on Middle Eastern oil, though some experts doubt its value. Mixing ethanol into gasoline displaces some oil consumption and boosts octane levels to improve vehicle performance.
(18 February 2006)