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Peak Oil Production and Imports in U.S.

When Obama announced the release of new sites along the U.S. coastline that will be opened for oil exploration, it seemed like another slap against his own supporters, those environmentalists who are opposed to any new drilling. Obama’s point was that establishing additional sources of domestic oil will further reduce our dependence on foreign oil, a problem now recognized within the military as Middle East oil and our policies in the region continue to place a bright red bulls-eye on the homeland soil of America. The environmentalists believe that we should accelerate the development of alternative, renewable energy resources and that we have been too timid and reluctant to invest in these innovative energy alternatives, precisely because the giant oil companies control our energy policies.  While it is true that our high energy demands are still met largely by oil, gas and coal-burning power plants, Obama’s decision on new oil exploration had less to do with the Middle East and a lot more to do with China.

Author Michael Klare, writing in TomDispatch (whose most recent book is “Rising Powers Shrinking Planet“)  has pointed out that during the last two years of the recession, America’s oil demand dropped by 9%, from 20.7 million barrels per day in 2007 to 18.8 million in 2009. In contrast, China’s oil consumption has gown in this same period, from 7.6 to 8.5 million barrels per day. And while projections for oil demand in the U.S. continue to be flat during the rest of 2010 and well into 2011, China’s will continue to grow during the Great Recession. The advantage that China has over the U.S. in securing  new oil fields is that the government of China is willing to provide financial backing for new developments that, in the near future, will make China one of the giant competitors to Western oil interests. Of course you could argue, as I believe we should, that our extensive, worldwide  military deployment is rationalized in part to protect Western oil supplies, and if you added those costs to the price we pay for oil, it wouldn’t seem like such a cheap form of  energy. But, as opposed to our oil companies which are subsidized in many ways by our government,  Chinese oil companies are state-owned and in tough times, that’s probably an advantage, as it serves and controls a national energy imperative and can thus look much further down the road than an American oil company that thinks in terms of five years or less.  As the accompanying graph shows, our domestic production for oil reached the “peak oil” condition in the early 1970s and most accounts dismiss the possibility that we could ever be self-sufficient in oil again. So what solution do we really have for solving the oil shortages that may lie in our future? Well, we have to import more, right?

Two developments are of relevance for any attempts we have planned for expanding our future oil imports, though they hardly summarize the entire picture of the competition we are facing for oil with Chinese oil expansionism: whereas you might have expected our military intervention in Iraq to give us an edge for developing Iraq’s huge oil reserves, in October 2009, the Chinese National Petroleum Company (CNPC) led a consortium, including BP, to develop the Rumaila oil field in Iraq, keeping in mind that Iraq has perhaps the third largest oil reserves on the planet. If that developmental arrangement goes well, China could become the dominant player for access to the lions share of Iraq’s oil reserves. You might ask what went wrong with the neocons invasion plans, since oil was supposed to be such a big part of the motivation for going to war?

The second development that has taken place has been the new emerging relationship between Saudi Arabia and China. Until 9/11, the interdependence between Saudi Arabia and the U.S. has always been that of a  comfortable love affair, in which the Saudis were the major supplier of U.S. Middle East oil. But 9/11 changed that, since we learned that most of the terrorists who attacked the U.S. were from Saudi Arabia and we have been critical of the manner in which they fund radical Islamic schools or Madrassahs, fed by the primary Islamic religion of the country–Wahhabism. For the Saudis, a shift in customer preferences towards China has become a comfortable two-way street, acceptable to both parties. Saudi Arabia recently announced that it sold more oil to China last year than to the United States, as if to announce the end of the long period of oil romance. “We believe this is a long-term transition,” said Khalid A. al-Falih, president and chief executive of Saudi Aramco, the state-owned oil giant. “Demographic and economic trends are making it clear — the writing is on the wall. China is the growth market for petroleum” (From Micahel Klare’s article in TomDispatch).

China has been acquiring foreign energy assets in Angola, Iran, Kazakhstan, Nigeria, Sudan and Venezuela. It is not just oil assets, but also metal mining operations for iron, copper and other resources essential for expansion of manufacturing.  So far, the collective Western Oil companies have more oil resources than those of the Chinese. But China has deep pockets and they have clearly decided to strike out for increased oil access at a time when the demands from the West are in a state of abeyance. China’s big stimulus package helped the country bounce back from the Great Recession and they are now aggressively seeking to insure an oil rich future for their expansion of manufacturing and national wealth.

Once our own recession is in the rear view mirror, perhaps after several years, and we wake up to take another look at the world around us, we will see that China has become the new epicenter of increased oil demand and the great rising customer for oil expansionism well into the future. That is one reason why Obama announced his intentions to expand domestic oil production in the United States, even though it is primarily for political purposes rather than a transition in oil policies.  Although the magnitude of the oil that might result from expansion through the new oil leases is unknown, at best, projections are that we might gain 5 to 10 years of additional oil at our current level of consumption. So, Obama’s commitment to energy independence and the rising influence of China in gaining access to oil resources which are in competition with the needs of the United States, places us on a collision course with China for one of the most critical resources we need to make our economy work. The second reason for Obama’s willingness to open more sites for oil exploration has to do with cooperation he is hoping to get from Republican Senators for his new energy policy, one that will include a cap and trade arrangement to begin the long slow retreat from the size of our current carbon footprint. Somehow, Obama needs to find a policy solution such that the country will see the trivial nature of the tea baggers, whose ideology is currently an obstacle for serious policy momentum on global climate change and resource conservation. However, oil conservation in the future will surely be spelled D-U-E  T-O   C-H-I-N-A! And, maybe that’s the kind of threatening stimulus that will spring us into action, just as long as our choice to resolve the conflict is not a military one. But, as the saying goes, if you have a set of tools, you are probably going to use them for any problem that seems soluble by the toolbox in your hand. The eight years of the Bush administration accomplished one major change in the perception of America among other countries: for the oil-rich, oil suppliers of the world, they view China as having eclipsed the U.S. for oil futures, and it’s better to deal with someone climbing up the ladder than someone going down.
RFM