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Subject: Nothing governments can do about rising oil prices: oil
expert 	Richard Heinberg
Date: Mon, 12 May 2008 16:53:27 -0700 (PDT)
From: dusty <trackdusty at yahoo.com.au>
Organization: http://groups.google.com
Newsgroups: alt.politics.socialism.trotsky

Softening up, or the truth?


Australian Broadcasting Corporation

Broadcast: 13/05/2008

Reporter: Tony Jones

Oil expert and author Richard Heinberg joins Lateline to discuss the
phenomenon of peak oil.

TONY JONES: Now to tonight's interview with Richard Heinberg. He's one
of the world's leading experts on the phenomenon of peak oil. That's
the point at which the world's oil reserves go into decline. The idea
is that having reached its peak it's all downhill from there and
there's evidence that global rates of oil discovery have been
declining since the 1960s, and that new oilfields are becoming more
and more inaccessible.

So as demand increases and supply decreases the price of oil goes up
and up and up, as we've painfully experienced in recent years. No one
really knows when we'll reach peak oil. It may have already happened,
it may take another three decades. Why has the price of oil gone up so
fast and so high in recent years? How much higher could it go and can
anything be done to reverse this relentless process?

Richard Heinberg has written a series of books on the oil crisis
including 'The Party's over', 'Power Down' and his latest 'The Oil
Depletion Protocol'. I spoke to him a short time ago in Santa Rosa,
California.


TONY JONES: Now let's start with the recent oil price predictions.
Goldman Sachs is saying within two years oil could reach US $200 a
barrel. Other analysts have a different view and say it could go down
back to $40 a barrel. Where do you sit on this? What do you think is
going to happen?

RICHARD HEINBERG: I think the price could lose some ground temporarily
but over the long term there's nowhere for oil prices to go but up.
And we could, in fact, see prices considerably above $200 a barrel
within the next two or three years.

TONY JONES: What does this mean for governments like Australia? We're
just about to have our Budget released in this country. The Federal,
the new Labor Government came to power promising to try and do
something about rising food prices in supermarkets and rising oil
prices. It sounds like their hands are going to be tied for the
foreseeable future?

RICHARD HEINBERG: Yes, I think that's true. I don't think there's
anything that the Australian Government can do or the US Government
can do about rising oil and food prices and by the way, these two
things are connected. The rising oil prices create increased costs for
farmers. Also the cost of shipping, food and just about everything
else is increasing, so these high prices are going to have knock on
effects through the economy. The airline industry is going to be hard
hit and again, there's very little that governments can do other than
to start planning for high oil prices. We should be redesigning our
economies to operate with less oil. Fundamentally that's the only sane
policy response. We can't just hope somehow for oil prices to come
back down to $40 a barrel. It's not going to happen.

TONY JONES: I'll come in a moment to how governments could do that.
But in the meantime, we had only last week the Noble Prize winning
economist Joe Stiglitz on this program. He actually blames the Iraq
war for the trigger that led oil prices to start spiralling. Do you
agree with him?

RICHARD HEINBERG: Well, I thought the US invasion of Iraq was a
terrible idea at the time and still feel that way, so if I thought
that somehow the high oil prices could be blamed on that I'd be happy
to do so. I think he maybe right that there were some minor trigger
effect there. But really, the situation we're seeing now mostly has to
do with the fundamentals of supply and demand. We have more countries
every year in the category of oil importing nations and fewer
countries every year that are able to export oil. That's the nub of
the issue.

TONY JONES: Including former oil producing countries like Indonesia,
for example?

RICHARD HEINBERG: And like Great Britain and Norway. Great Britain has
now become a net oil importing country again after 30 years of being
an exporter.

TONY JONES: Stiglitz takes quite a conservative approach in his book
on the costs of the war. But he makes the point that before the war
the futures market which usually gets these things pretty right, had
already factored in the increasing demand from the boom economies like
India and China and yet the increases that have happened are way
beyond what the futures market expected, which is why he tends to
blame the war. And he makes the further argument that the big Arab oil
producing companies have decided keeping their asset in the ground and
still making record profits is the way to go?

RICHARD HEINBERG: He's right on the latter point. There has been a
definite change of attitude on the part of some of the Arab oil
exporting countries, but it's entirely understandable. Look at Kuwait,
for example. There was a little kerfuffle a couple of years ago when
oil intelligence Weekly published an article suggesting that Kuwait's
real oil reserves were only half of what that country had been telling
the world and the Kuwaiti Parliament then went to the oil industry and
said, "Is this really true? What are our real reserves?" The oil
minister said, "I'll get back to you" and evidently still hasn't. The
evidence is clear that Kuwait and a number of other oil exporting
countries have overstated reserves pretty substantially, and these are
countries which rely on oil exports essentially for most of their
income nationally. So what are they going to do for an encore once the
oil is gone? It really makes sense for them to slow down on production
rather than pumping the oil out of the ground as fast as they can and
be left with nothing for the future.

TONY JONES: Do we know the truth, though? The global oil industry has
consistently revised oil reserves upwards over a period of time. It is
estimated there's more than a trillion barrels left underground just
from known reserves at the moment which would last for a considerable
amount of time obviously?

RICHARD HEINBERG: Well, yes. If we could use those reserves at any
arbitrary rate, the problem is oil is getting harder and hard tore get
out of the ground. We've used the cheap, easy stuff. We've used the
oil we could get from Texas and Oklahoma and even the North Sea and
now what we're finding are oilfields in ultra deep water and places
that are extremely difficult to access from a technical standpoint.
We're also starting to get more from places like the Canadian tar
sands where there's an enormous amount of resource in place, but it's
not liquid oil. It's the stuff that has to be converted into synthetic
fuel using enormous amounts of water and natural gas. Very resource
intensive and environmentally ruinous process. So the easy glory days
of the oil industry are over and just about everybody in the industry
would agree with that statement.

TONY JONES: So you don't believe we may be facing a sort of oil
embargo as we faced in 1973, but this time by stealth?

RICHARD HEINBERG: No. In 1973 what we saw was political and it was
short term. What we're seeing now is long term. I don't think this is
ever going to turn around. Most of the, even the Arab oil producers
are producing flat out. They're producing as much oil bringing it to
market as fast as they can. The only possible exception is Saudi
Arabia and the Saudis may have as much as two million barrels a day in
spare production capacity. We don't know for sure because there's no
way for a third party agency to audit the Saudi reserves or even their
production data. But evidence would suggest that they probably have
some production capacity in reserve. That's about the only country
that can say that.

TONY JONES: I suppose that is the key question. If they were hiding
behind the notion of peak oil that notion is terribly unclear, because
we may have already passed the peak oil point or, in fact, we may not
pass it I think you acknowledge yourself for another three decades
which puts a completely different time scale on the whole event?

RICHARD HEINBERG: There are a few holdout analysts who are saying we
may not see global oil production peak for two or three decades, but
they're substantially in the minority these days and becoming ever
more so. I think that the evidence is lining up very strongly in
favour of a notion of a near term global oil production peak. For the
last two years oil declines have led oil advances, I think a pretty
good argument can be made that we're there right now.

TONY JONES: So in the meantime, how much pressure is there going to be
to open up brand new areas for exploration, parts of the Arctic which
haven't been drilled and even the Antarctic which currently where oil
drilling and exploration are forbidden because it's considered to be a
world park at the moment?

RICHARD HEINBERG: There is tremendous competition to gain access to
these areas. Russia, Canada and some other nations are laying claim to
areas of the Arctic to be able to drill there in the future. This is
not very prospective area. In other words, from a geological
standpoint it's very unlikely we'll find substantial amounts of
recoverable oil in the Arctic, and I think it's a sign of the
desperation of the industry that there's so much excitement about
going into a place that will have unprecedented challenges from a
technical standpoint just in operating there. We don't have the
equipment that can operate in the Arctic. It's going to be decades
before oil can be commercially produced there and yet, we see this
enormous competition for access to the place. I think it's, as I said,
a sign of desperation.

TONY JONES: At what point in the price cycle does it become economic
to convert coal into synthetic fuel, gas into liquids, for example?

RICHARD HEINBERG: Well, the technology for turning either coal or
natural gas into liquid fuels is already in place. South Africa has
been turning coal into liquid fuel for many years. A company called
Sassal operates in South Africa and produces 150,000 barrels a day.
That's only a small part of South Africa's oil consumption. They use
about 450,000 barrels a day. Even in the one country using this
technology they're not getting even a majority of their oil from it.
So it's going to take an enormous amount of investment to build coal
to liquids plants. These are very expensive facilities to build. We're
taking a low grade hydro carbon, namely coal, we're putting it through
an intensive process that costs about 40 per cent of the energy in the
coal to produce a expensive synthetic fuel. Again, it can be done. I
think probably the US Department of Defence is going to go in the
direction of coal to liquids but frankly I think it's unlikely we'll
see a very large scale implementation of this technology, just because
it is so expensive and it's so inefficient from an energy standpoint.

TONY JONES: Then you have the incoming problems obviously of the
economic viability of doing that once you add into it the global
warming costs?

RICHARD HEINBERG: Well, of course, yes. We're talking about again an
environmentally ruinous practice. The Sassal plant in South Africa can
be seen from space. It's the greatest single point source of pollution
on the entire African continent and that's just 150,000 barrels a day
and the world is using 85 million barrels a day of liquid fuel. If we
were to try to replace any substantial portion of that with coal to
liquids we would be looking at a climate doomsday scenario.

TONY JONES: You've thought about this Richard obviously in great
detail over many years now and your proposed plan for the world, in
fact, is to produce a kind of global agreement similar in a way to the
Kyoto Protocol which you call the oil depletion protocol. Can you tell
us how that would work and how hard it might be to get such an
agreement between competing economies?

RICHARD HEINBERG: I wouldn't pretend to suggest it won't be difficult
to get that kind of agreement, but essentially it would be a protocol
to reduce oil consumption globally and nationally and also oil
production by the world depletion rate which is about 2.5 per cent per
year. In other words of the oil that's left to extract out of the
ground we're using about 2.5 per cent of that every year. If we
reduced our consumption by that same amount that would stabilise
prices and it would reduce the incentive for competition and perhaps
even deadly competition in the future for access to the remaining
supplies of oil in the world. I honestly see the oil depletion
protocol as the only way forward that doesn't lead to global oil wars
and to economic collapse.

TONY JONES: What do you think it would take for this to become top of
the agenda, for example, in a new White House in Western governments
around the world and indeed in the booming economies of China and
India, what would it take to move that idea to centre stage?

RICHARD HEINBERG: Well, obviously it would take some political
courage. Policy makers would have to understand once and for all that
oil prices are not going down they're only going higher. So the only
thing we can do at this point is to adapt to this new era that we're
in of rapid oil depletion. That means that if we're going to save our
economies we have to undo our vulnerability to oil scarcity and higher
prices and the only way to do that is to reduce our consumption.
Sweden has already taken this step. The Swedes have made it a target
to become oil dependent by 2020 and there are a number of cities in
North America that have made a similar kind of commitment. Portland
Oregon, Oakland California, and a number of others have established
oil vulnerability task forces and are looking at ways of reducing
their city oil consumption quite dramatically over the next few years.
Now this kind of proposal has yet to make it to the halls of Congress
and the US or to Parliament in Australia, but I think it's important
that the idea be brought forward as soon as possible, because the
sooner we start reducing nationally our oil consumption the sooner we
can stabilise prices and begin to adapt to the world that we're moving
into.

TONY JONES: You raise this spectre of oil wars and future conflict
over oil. What do you mean exactly? Where would you see that arising?

RICHARD HEINBERG: Well, what we're seeing is not just a likely decline
in total oil production, but especially a decline in available oil
exports, because as I mentioned earlier the oil exporting countries
are seeing such rapidly increasing domestic demand. So the amount
available on the global export market could decline by up to half just
within the next 10 to 15 years. That's going to put enormous pressure
on major oil importing countries like the United States and China. The
US is the world's foremost oil importer, China is the world's second
foremost oil importing countries. These two countries are going to
head to head for access to supplies in central Asia, Africa, in the
Middle East, and it's difficult to envision a situation in which that
competition would not become very, very intense.

TONY JONES: Not so long ago, there were some senior neo conservative
thinkers in Washington who were actually advocating the United States
taking over Saudi Arabian oilfields. The implications of that are
extraordinary, of course. Could you imagine ever reaching the point
where that became seriously part of the administration's agenda?

RICHARD HEINBERG: Absolutely, yes. If there were to be a revolution in
Saudi Arabia and the country were to be taken over by any political
party or group that was not friendly to America's interest, then I
think it's very likely that the US would invade.

TONY JOENS: Richard Heinberg, we'll have to leave you there. We thank
you very much for taking the time to talk to us tonight on Lateline.

RICHARD HEINBERG: Thank you Tony, it's been a pleasure.

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