Energy and Liberty
It's interesting to note that Indonesia is taking Glenn Reynolds' advice. Well, Ok. It's a coincidence. But what Professor Reynolds said was, "coal and oil are, over the long term, far more valuable as chemical feedstocks than as fuels anyway, and burning them is unacceptably filthy regardless of greenhouse issues. We should replace them as soon as possible with nice, clean, greenhouse-friendly nuclear plants and other environmentally friendly power technologies. Burning less carbon is good planetary hygiene, and good practice generally, regardless of what you think of global warming." Indonesia is planning to build one of nice, friendly nuclear reactors now that it may be running out of oil. Indonesia running out of oil? Out of oil production capacity at least. Channel Asia News reports:
JAKARTA: Indonesia will pursue its plans to develop nuclear power as part of efforts to find alternative energy sources to address its growing needs, Environment Minister Rachmat Witoelar has said. Jakarta shelved atomic energy plans in 1997 in the face of mounting public opposition and the discovery and exploitation of the large Natuna gas field. But the plans were floated again in 2005 amid increasing power shortages.
It's often hard to imagine that oil exporters ever run out of the stuff. But they do for a variety of reasons ranging from the depletion of the resource to chronic underinvestment in maintaining production. The Energy Bulletin notes that Indonesia May Become an Oil Importer as Output Slides:
Indonesia, Southeast Asia's only OPEC member, may become a net oil importer this year as projects led by ConocoPhillips, Unocal Corp. and PetroChina Co. fail to stem falling output, helping to boost fuel prices to records. The country may turn to importing a net 61,000 barrels a day this year from net exports of 27,000 barrels a day in 2004, based on figures in a document prepared for the Energy and Mineral Resources Ministry and obtained by Bloomberg News. Indonesia is draining oil from global markets at a time when China's soaring demand helped to push prices to a record $58.28 a barrel on April 4. To revive exports, President Susilo Bambang Yudhoyono must resolve contract disputes that have curbed spending by companies including Exxon Mobil Corp.
Even Iran, which conjures up images of vast oil wealth may, like Indonesia, may soon be a net importer of oil. "As domestic energy consumption skyrockets, Iran is struggling to produce enough oil and gas for export. Unless Tehran overhauls its policies, its primary source of revenue and the basis of its geopolitical muscle could start to wane. Within a decade, says Saad Rahim, an analyst at Washington consultancy PFC Energy, 'Iran's net crude exports could fall to zero.'" That has two ironic effects: make Iran seek not-so greenhouse-friendly nuclear plants and second, to tighten the oil market even more, paradoxically increasing the power of its declining volume of exports. The Washington Post notes that the less spare capacity there is in the oil market, the more important the remaining capacity becomes. Just as people often ignore pocket change until the day they lose their jobs, so to does the world start counting its barrels as the fields age and dry out.
The reason Iran has any leverage is the change in the world oil balance. As recently as four years ago, the world had 7 million barrels a day of spare oil production capacity, but today that cushion between supply and demand is smaller than Iran's 2.5 million barrels a day of exports. Losing Iran's exports would spell disaster, with soaring prices and limited supplies. "There is no cushion that is that great," said Edward Morse, executive adviser of Hess Energy Trading Co. in New York. Saudi Arabia's spare capacity could cover 1.2 million to 1.5 million barrels a day of any shortfall, though that would be heavy oil unsuited for many refineries. Morse added, "If there were peace in Iraq or Nigeria, they could produce more. But there isn't peace in either place."
The relationship between the discovery of oil reserves and world peace is problematic. On the one hand, the discovery of huge sources of mineral wealth encourages the rise of parasitic, despotic governments which can subsist simply by pulling money out of the ground. Those very same despotic governments are in turn compelled to buy off dissenters, subsidize domestic petroleum products and discourage foreign investment, all of which reduce their ability to produce wealth in the first place. Iran's net oil exports, for example, are declining at the very moment when more reserves are being discovered. As its potential wealth increases, the inefficiencies of its dysfunctional government correspondingly reduces its ability to realize it. Oil, like some addictive drug, can destroy the capacity of those whom it momentarily catapults into wealth. While oil production rose in non-OPEC countries every year since 1993, most of world's reserves are (excepting Canada) in politically problematic countries.
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Europe, which unlike North America does not have a Canada, will look to the Middle East and the former Soviet Republics for its energy needs. So too, will the growing economies of East Asia. "With a moderate decline in North Sea production, OECD Europe is expected to import increasing amounts from Persian Gulf producers and from OPEC member nations in western Africa. Substantial imports from the Caspian Basin are also expected. OECD Asian nations are expected to increase their already heavy dependence on OPEC oil. The non-OECD economies of Asia are expected to more than double their total petroleum imports between 2003 and 2030." Expect another two decades of anti-Americanism and anti-Semitism in Europe.
Unfortunately, Glenn Reynolds advice to shift to environmentally friendly nuclear reactors alone can only take the world so far off its addiction to oil. Most projected increases in demand will be in the transportation and chemical sectors, for which few sources of alternative energy currently exist. "Much of the world’s incremental oil demand is projected for use in the transportation sector, where there are few competitive alternatives to petroleum ... of the projected increase in oil use in the reference case over the 2003 to 2030 period, one-half occurs in the transportation sector. The industrial sector accounts for a 39 % share of the projected increase in world oil consumption, mostly for chemical and petrochemical processes." Until ways can be found to transform nuclear power into more portable stores of energy, the world's dependence on oil will continue. Recently a Pajamas Media special report focused on Hillary Clinton's energy policy, which apparently, now includes targeting oil industry profits to fund government energy programs. Will it work? At first glance Hillary's idea seems precisely the strategy that resulted in underinvestment with consequent declines in production, in Indonesia and Iran. In the short run taxing American oil companies will probably make the US more dependent on existing OPEC reserve production, in accordance with the principle that the reducing the cushion makes what is left of it more precious. But if Hillary's program has any potential for payoff down the road, it paradoxically lies in increasing the price of oil through scarcity. Painful oil price hikes make alternative sources of energy economically viable and stimulates research into new technologies. After all, one way to get a junkie off drugs is to deprive him of money. Ruin the oil sector, take America off oil. It makes sense in a way. But even so it must be a selective ruination, not the wholesale implementation of Green Regulation over the energy sector. The worst thing that could happen is to create an energy policy so hedged with environmental restrictions that even research into new technologies becomes subject to a Greenpeace veto. After all the planned Indonesian reactor is opposed by Environmentalists; and those who repose such confidence in Green predictions about Global Warming should remember how they once warned against nuclear power plans; and if they have had any second thoughts on the subject it is largely because of the collateral damage caused by their own misprescriptions. Maybe that's the best we can hope for. Energy independence through unintended consequences.