The Global Rush to Claim and Exploit Our Oceans

Oceans Monopoly

Al Jazeera (2016)

Film Review

This documentary explains the legal process by which coastal countries claim access to valuable seabed resources outside the three-mile statutory limit set by international law.

In 1945 President Truman issued the Proclamation on the Continental Shelf, claiming all seabed resources on the US continental shelf* for the purpose deep sea oil drilling.

In 1982, the United Nations formalized the granting of seabed claims by creating the Exclusive Economic Zone (EEZ). By definition, the EEZ extends 200 miles beyond a nations coastline. This UN mandate was subsequently modified to allow coastal countries with continental shelves extending more than 200 miles to claim the entire area as national territory.

In 1997, the UN General Assembly created the UN Commission on the Limits of the Continental Shelf. The latter is a body of 21 geologists who assess geologic data countries submit to document their continental shelf boundaries.

Often the continental shelf of neighboring countries overlaps. For example Canada, Norway and Russia all claim the Arctic Ocean – believed to hold 10% of the world’s remaining oil reserves.

In the South China Sea, eight countries are fighting over $100 billion worth of resources.

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*The continental shelf is an underwater landmass which extends from a continent, resulting in an area of relatively shallow water known as a shelf sea.

 

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Oil Economics Made Easy

Afterburn Society: Beyond Fossil Fuels

Richard Heinberg (2015)

Film Review

Afterburn Society is about the economics of energy, specifically the energy produced by fossil fuels. The subject of economics is like bad-tasting medicine for a lot of people. However Post Carbon Institute Fellow Richard Heinberg’s jargonless, down-to-earth delivery makes the experience quite painless and even pleasurable.

Heinberg begins by tracing the history of agriculture and manufacturing. Prior to the late 19th century, there were only two sources of energy. People either relied on their own muscle power or they employed traction animals or slaves (ironic, isn’t it, how fossil fuels replaced slavery?).

In contrast, our modern-day food industry relies heavily on fossil fuels to run farm machinery, for plastic packaging (derived from oil), to transport food to market, for nitrogen fertilizer (derived from natural gas) and as a source of herbicides and pesticides (derived from oil).

It takes 350 gallons of oil a year to feed one American and seven Calories* of fossil fuel to produce one calorie of food.

The Law of Diminishing Returns

Heinberg goes on to explain the law of diminishing returns as it pertains to oil production. Over the last eight years investment in oil production has soared, while output per dollar invested has steeply declined. From 1997-2005, oil companies spent $1.5 trillion to produce 86 million barrels of oil a day. Between 2005-2013, they spent $4 trillion to produce 3 million barrels a day.

Industry data reveals conventional oil production peaked in 2005 and has been declining ever since. Most of the new oil production has come from more costly and risky technologies, such as fracking and deep sea oil drilling. The use of these new technologies has increased the cost of oil extraction. This, in turn, has led the price of oil to skyrocket from $27 a barrel in 2000 to $100 a barrel in 2014.

The higher price of oil means a higher return for oil companies. This, in turn, enabled more costly and controversial technologies, such as fracking and deep sea oil drilling have come onboard. They only became economically viable when the price of oil passed $70-80 a barrel.

EROEI

Oil production costs aren’t only increasing in dollar terms, but in terms of the energy required to extract new oil. Heinberg predicts that by mid-century, it will require as much energy to extract a unit of oil and natural gas as that unit will produce when it’s burned. At that point, fossil fuels will cease to be a viable energy source, though they may continue to be useful in producing plastics, synthetic fabrics and other petroleum byproducts.

Overall surplus energy will steeply decline when this happens, as renewable energy technologies have a much lower EROEI (Energy Return on Energy Invested) than fossil fuels. For example, solar energy has an EROEI of 2.5-5 to 1 (2.5-5 units returned for every unit invested), in contrast to oil’s EROEI of 30 to 1. Biofuels, with an EROEI of 1 to 1, are even worse. Their only purpose is to return a profit to government subsidized biofuel merchants like Archer Daniels Midland. They’re useless as an energy source.

The steep decline in surplus energy will translate into major social change, as nearly all of our energy use will be geared towards producing new energy (i.e. food production).

The Recent Drop in Oil Prices

In my view, the only shortcoming in this presentation was Heinberg’s failure to address the steep drop in oil prices that began in June 2014 (from $100 to $48 a barrel, recently leveling off around $60 a barrel). He does discuss it in a December 19, 2014 article The Oil Price Crash of 2014

In brief he attributes the temporary price drop to a decrease in demand (due to deepening recession in China, Japan and Europe), coupled with increasing supply (due to the frantic pace of fracking in the US). Normally when there’s a mismatch in supply and demand, it falls on Saudi Arabia (the world’s top oil exporter) to ramp down production. This time the Saudis have refused to cut back production.

Their motivation is a matter of speculation. According to Heinberg, the most likely reasons are a desire to destroy the US fracking industry (small fracking companies are going bankrupt in droves – they’re up to their eyeballs in debt and fracked oil is only profitable above $70-80 a barrel) – and to punish Russia and Iran (whose economies are totally dependent on oil and gas exports) for meddling in Syria and Iraq.

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*A measure of energy, a Calorie is the amount of energy needed to raise 1 kilogram of water 1 degree Centigrade.

Those Fracking Lies

Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future 

Richard Heinberg (Post Carbon Institute, 2013)

Book Review

Snake Oil is all about the economics of fracking. Also known as hydraulic fracturing, fracking refers to using pressurized water and chemicals to release oil or natural gas trapped in underground rock formations. Heinberg’s new book describes the behind-the-scenes role of Goldman Sachs and other investment banks in driving the present fracking boom.

Technology to extract oil and gas deposits trapped in rock formations was first developed in 1866. Because the process is extremely capital intensive, fracking for oil only became economically sustainable in when the price of oil tripled a decade ago. In the case of natural gas, it took the elimination of price controls and federal tax credits to make fracking financially feasible.

How Fracking Loses Money

According to Heinberg, fossil fuel companies are losing money on fracking. The recent boom has led to a surplus of natural gas. This, in turn, has driven the price down, forcing the oil/gas industry to sell it for less than they spend to get it out of the ground. Because only a small fraction of shale gas can be extracted cost effectively, production declines by an average of 80-90% over the first 36 months. Industry data indicates it costs between $10-20 million to operate a fracking rig that will produce $6-15 million worth of natural gas in the well’s lifetime.

Obviously you can’t tell investors that fracking for natural gas is a money-losing proposition. Investors only want to hear that fracking is the miracle solution to America’s dependence on dirty coal and foreign oil. Thus oil/gas companies, the banks that finance them, the federal agencies that regulate them and Obama himself all parrot the hype that fracking will supply cheap natural gas to fuel US power plants for the next 100 years. According to Heinberg, this wildly optimistic prediction was calculated by extrapolating the best production rates of the best fracking sites over the 20,000 or so existing rigs. The problem with this methodology is that it fails to allow for rapid depletion rates or the fact that the best wells are already tapped out.

This pressure to meet financial targets forces the companies to sink more and more wells. Thirty-five to fifty percent of existing wells (7,200 wells) must be replaced every year “just to pay off the bankers.”

Fracking Based Derivatives

The only way companies can stay in business is by selling assets and financial products. This includes unused oil and gas leases^* they acquired cheaply in the 1990s, company shares, derivatives and credit default swaps. The investment banks themselves have created their own fracking-based derivative called volumetric production payments (VPPS). The banks bundle them and sell them to gullible pension fund managers, just like they did toxic mortgages before the 2008 crash.

The billions they’re losing explains why the industry is so keen to start exporting fracked gas as Liquified Natural Gas (LNG) to China, Japan and India. These countries are happy to pay $15 per million BTUs, nearly four times the domestic price of $4. A growing export market will quickly drive up US prices.

Environmental Consequences of Fracking

Meanwhile the explosion of fracking rigs across the landscape is causing massive environmental damage and eating up scarce dollars we should be investing in renewable energy. Owing to strong public opposition, fracking is banned or strictly regulated in most of Europe. As a result, Europeans are far more likely to invest energy dollars in renewables. In 2012, Germany obtained 23% of their electricity from renewable sources, Denmark 41% and Portugal 45%

Snake Oil debunks the widely promoted myth is that that burning natural gas to produce electricity creates less greenhouse gasses than burning coal. If you count all the methane (a greenhouse gas 20-100 times more potent than CO₂) released during fracking, using fracked natural gas to fuel power plants produces 20-100% more greenhouse gas emissions than coal.

The massive amount of freshwater consumed by tens of thousands of fracking wells is also a major concern, especially in drought-stricken regions. The water take for a single well pad cluster can exceed 60 million gallons. The Halliburton Loophole, championed by Dick Cheney, amended the Clean Water Act in 2005 to remove the requirement that oil and gas companies disclose the toxic chemicals they use in fracking. This is especially concerning given recent studies documenting serious health problems in people and livestock adjacent to fracking sites.**

In 2011, the EPA made the determination that fracking waste is too radioactive (from exposure to underground cesium and uranium) to be processed in municipal waste facilities. Thus most of it held in large evaporation pools or re-injected into old wells. A recent US Geological Service study has linked deep well re-injection to a rash of earthquakes in regions that rarely experience them. In 2011 central Oklahoma experienced a fracking-related 5.7 earthquake that destroyed 14 homes and a highway and injured two people.

Other Unconventional Production Methods

Snake Oil also debunks the flimsy economic hype used to promote other methods of unconventional oil and gas production (e.g. oil fracking, deep sea oil drilling, tar sands, etc), as well as examining what the inevitable transition to renewable energy will look like. Because renewable energy will never be as cheap as fossil fuels, some modification will be necessary in our current energy intensive lifestyle.

 *An oil or gas lease is a contract by which a landowner authorizes exploration for and production of oil and on his land, usually in return for royalties from the sale of the oil or gas.

**According to Al Jazeera, a jury has just awarded a Texas family $3 million for fracking related health problems.

 

Originally published in Dissident Voice

So You Want to Have a Revolution?

A 2013 study from Fairleigh Dickinson University reveals that 29% of Americans believe an armed revolution may be necessary in the next few years to “protect liberties.” The voter survey differed from most corporate media polls in that it included a substantial number of low income, cellphone only households.

18% of Democratic respondents shared this view, 27% of Independents and 44% of Republicans.

A decade ago, the notion that anyone other than a few thousand fringe extremists would contemplate violent revolution was unthinkable. At the very least, these results suggest a significant minority of Americans are profoundly disillusioned with the government’s apparent indifference to their needs and expectations.

The End of Growth: An Inconvenient Reality

Despite government claims to the contrary, recovery from the deflationary spiral that started in 2008 (aka The Recession) has been elusive. Although stock prices continue to soar, productivity, employment and consumer spending have stubbornly refused to return to pre-2008 levels. Some latter day (non-Wall Street) economists believe the era of economic growth has ended – permanently – owing to the soaring cost of fossil fuels. In their view, the world has returned to a steady state economy.

Given the historic link between growth and “full” employment (jobless levels below 10%), they are also predicting a scenario in which roughly half the adult population is unemployed. The paid work that remains will be low paid, part time, temporary jobs, unprotected by unions, employment rights or health and safety regulations.

To appreciate that US economic growth is at a standstill, it’s essential to look at undoctored economic data. For example, when Obama and the corporate media trumpeted a 7% unemployment rate for November, they neglect to mention that this figure only reflects the number of workers newly unemployed in the last six months (i.e. the number still receiving basic unemployment benefits). Unlike other countries, the official US jobless figure doesn’t include workers whose benefits have run out, who have stopped looking for work, or who want to work full time but are stuck in part time jobs.

Data from the Federal Reserve Bank of St Louis reveals that the US economy is shedding full time jobs, rather than gaining them. The percentage of unemployed Americans of working age has increased from 35.5% in 1999 to 41.7% in 2013 – the highest since 1980. Most of that increase (5%) has occurred since Obama was first elected in 2008.

The 2008 Economic Crash Was Predictable

Prominent members of the Peak Oil movement, most notably Michael Ruppert and Richard Heinberg, predicted the 2008 economic crash. They based their predictions on declining oil reserves, the failure of oil production to keep up with increasing demand from developing countries and the steep rise in oil prices that began in 2005.* Based on their calculations, mankind had extracted half of the world’s available oil reserves by November 2005. This was officially known as Peak Oil. We reached Peak Natural Gas several years before that, though we won’t reach Peak Coal for another decade or so.

Although there still remains tons of oil, gas and coal left in the ground for us to extract and burn, we are now on a downward slope. Not only is production continuing to outstrip demand, but most of the remaining oil, natural gas and coal are difficult to get at, expensive to extract and rely on dangerous, expensive, environmentally destructive and controversial technologies, such as deep sea oil drilling, tar sands extraction fracking and mountain top removal.

Capitalism and Productivity

The steady economic expansion we call growth is a relatively new phenomenon in human history. Prior to the 19^th century, the major nations of the world operated steady state economies. In fact the argument Heinberg and others make is the burst of productivity most of the world attributes to capitalism had nothing to do with the capitalist economic model itself. Rather it was based on the widespread abundance of cheap fossil fuels. British economists at the Fiesta Institute provide abundant data justifying this argument in Fleeing Vesuvius: Overcoming the Risks of Economic and Environmental Collapse. They point out that even at current oil prices, it costs far less to use a machine to perform work than to employ a human being or even a draft animal.

The birth of capitalism wasn’t just about the exploitation of fossil fuels. It was about the exploitation of all natural resources – clear cutting forests, large open pit mines to extract steal, copper, gold, bauxite (for aluminum), gold diamonds and rare earth minerals, draining swamps and eradicating wetlands. When oil started becoming more expensive (in the 1970s), it was also about moving western factories to third world countries to enable wholesale exploitation of human labor. Government encouraged this wholesale extraction and exploitation because it produced enormous prosperity for most of western society over many decades.

At the same time there were immense human and environmental costs. Western capitalism produced incalculable suffering in the third world as indigenous people were driven off the land that gave them a subsistence living, with the lucky ones obtaining jobs in brutal sweatshops that paid starvation wages. Suffering in the first world was less visible until last decade, when residents of the industrialized world began to realize they were being systematically poisoned with toxic industrial chemicals, increasing levels of both nuclear and microwave radiation and harmful organisms that had contaminated our air, water and food chain.

*Historically the oil price ranged between $2-4 a barrel prior to 1973 oil crisis. It remained between $10-20 a barrel until 1979. From 1979-1986 it fluctuated between $20-38 a barrel until 1986, when it dropped below $20 a barrel until 1989. It dropped below $20 a barrel very briefly in 1999. It hasn’t been below $40 a barrel since 2004.

photo credit: athens.rioter via photopin cc