Magazine article Earth Island Journal

The End of the Oil Age: Here's a Fact Known to the Bush Administration, but Hidden from the Rest of Us: The Rate of Global Oil Production Is about to Peak. (Cover Story)

Magazine article Earth Island Journal

The End of the Oil Age: Here's a Fact Known to the Bush Administration, but Hidden from the Rest of Us: The Rate of Global Oil Production Is about to Peak. (Cover Story)

Article excerpt

The atrocities of September 11, 2001 so dominated world news, politics, military affairs, and the economy that popular discussion soon divided all of recent history into two categories: "pre-9/11" and "post-9/11." For most Americans, the events were not only horrifying, but entirely unexpected.

The Bush administration's response to the 9/11 attacks was to bomb Afghanistan, remove the Taliban regime from power, and install a compliant interim client government. A few commentators pointed out that Afghanistan was located near the strategically significant oil and gas reserves of the Caspian Sea, speculating that the war might be an effort to enforce the building of a gas pipeline through Afghanistan to warm-water ports in Pakistan. Others, including some oil-industry insiders, disputed the idea that the war was essentially about oil or natural gas, pointing out that Afghanistan wasn't essential to the domination of energy resources in the region, and that the proposed pipeline was of minor economic consequence to the US.

But if not for oil, the US would have little interest in the Middle East. If not for US involvement in Saudi Arabia, Osama bin Laden might never have felt compelled to destroy symbols of American economic and military power.

The Bush administration quickly proclaimed that the Afghanistan campaign was only the beginning of its "war on terrorism," and officials floated lists of other potential targets, numbering from three to nearly 50 nations. Critics of the Bush policy claimed that the administration had, in effect, declared war on much of the rest of the world. Most of the listed nations possessed important oil resources while many--including Iran and Iraq, both high on the lists--had little or no discernible relationship with bin Laden or Al Qaeda. Iraq, of course, has since been invaded, and the despotic regime of Saddam Hussein cast out. With "terrorism" as its ostensible but elusive enemy, the Bush administration appeared to be embarking on a plan to use its military might to gain footholds in strategic regions around the globe, and perhaps to seize full and direct control of the world's petroleum resources.

On its face, this was a strategy that made little sense, as it risked destabilizing the entire Middle East. However, it was more understandable when viewed in light of information known by the administration, but obscure to the vast majority of the world's population: the rate of the global production of crude oil was about to peak.

The ground giving way

In nearly every year since 1859, the total amount of oil extracted from the world's underground reserves has grown--from a few thousand barrels a year to 65 million barrels per day by the end of the 20th century, an increase averaging about two percent yearly. Demand has grown just as dramatically, sometimes lagging behind the erratically expanding supply. The great oil crises of the 1970s were politically based; there was no actual physical shortage of oil.

In the latter part of the year 2000, the world price of oil rose dramatically: from $10 per barrel in February 1999 to $35 per barrel by September 2000. Meanwhile, a wave of mergers swept the industry. Exxon and Mobil combined into ExxonMobil, the world's largest oil company. Chevron merged with Texaco, Conoco merged with Phillips, BP purchased Amoco-Arco. Small and medium-sized companies--such as Tosco, Valero, and Ultramar Diamond Shamrock Corporation--also joined in the mania for mergers, buyouts, and downsizing. US oil-company mergers, acquisitions, and divestments totaled $82 billion in 1998 and over $50 billion in 1999.

The oil industry appeared to be in a mode of consolidation, not one of expansion. As Goldman Sachs put it in an August 1999 report, "The oil companies are not going to keep rigs employed to drill dry holes. They know it but are unable ... to admit it. The great merger mania is ... a scaling down of a dying industry in recognition that 90 percent of global conventional oil has already been found. …

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