Why High Gas Prices Are Here to Stay

A Tough-Oil World

by MICHAEL T. KLARE

Oil prices are now higher than they have ever been — except for a few frenzied moments before the global economic meltdown of 2008. Many immediate factors are contributing to this surge, including Iran’s threats to block oil shipping in the Persian Gulf, fears of a new Middle Eastern war, and turmoil in energy-rich Nigeria. Some of these pressures could ease in the months ahead, providing temporary relief at the gas pump. But the principal cause of higher prices — a fundamental shift in the structure of the oil industry — cannot be reversed, and so oil prices are destined to remain high for a long time to come.

In energy terms, we are now entering a world whose grim nature has yet to be fully grasped. This pivotal shift has been brought about by the disappearance of relatively accessible and inexpensive petroleum — “easy oil,” in the parlance of industry analysts; in other words, the kind of oil that powered a staggering expansion of global wealth over the past 65 years and the creation of endless car-oriented suburban communities. This oil is now nearly gone.

The world still harbors large reserves of petroleum, but these are of the hard-to-reach, hard-to-refine, “tough oil” variety. From now on, every barrel we consume will be more costly to extract, more costly to refine — and so more expensive at the gas pump.
Those who claim that the world remains “awash” in oil are technically correct: the planet still harbors vast reserves of petroleum. But propagandists for the oil industry usually fail to emphasize that not all oil reservoirs are alike: some are located close to the surface or near to shore, and are contained in soft, porous rock; others are located deep underground, far offshore, or trapped in unyielding rock formations. The former sites are relatively easy to exploit and yield a liquid fuel that can readily be refined into usable liquids; the latter can only be exploited through costly, environmentally hazardous techniques, and often result in a product which must be heavily processed before refining can even begin.

The simple truth of the matter is this: most of the world’s easy reserves have already been depleted — except for those in war-torn countries like Iraq. Virtually all of the oil that’s left is contained in harder-to-reach, tougher reserves. These include deep-offshore oil, Arctic oil, and shale oil, along with Canadian “oil sands” — which are not composed of oil at all, but of mud, sand, and tar-like bitumen. So-called unconventional reserves of these types can be exploited, but often at a staggering price, not just in dollars but also in damage to the environment.

In the oil business, this reality was first acknowledged by the chairman and CEO of Chevron, David O’Reilly, in a 2005 letter published in many American newspapers. “One thing is clear,” he wrote, “the era of easy oil is over.” Not only were many existing oil fields in decline, he noted, but “new energy discoveries are mainly occurring in places where resources are difficult to extract, physically, economically, and even politically.”

Further evidence for this shift was provided by the International Energy Agency (IEA) in a 2010 review of world oil prospects. In preparation for its report, the agency examined historic yields at the world’s largest producing fields — the “easy oil” on which the world still relies for the overwhelming bulk of its energy. The results were astonishing: those fields were expected to lose three-quarters of their productive capacity over the next 25 years, eliminating 52 million barrels per day from the world’s oil supplies, or about 75% of current world crude oil output. The implications were staggering: either find new oil to replace those 52 million barrels or the Age of Petroleum will soon draw to a close and the world economy would collapse.

Of course, as the IEA made clear back in 2010, there will be new oil, but only of the tough variety that will exact a price from us all — and from the planet, too. To grasp the implications of our growing reliance on tough oil, it’s worth taking a whirlwind tour of some of the more hair-raising and easily damaged spots on Earth. So fasten your seatbelts: first we’re heading out to sea — way, way out — to survey the “promising” new world of twenty-first-century oil.

Deepwater Oil
Oil companies have been drilling in offshore areas for some time, especially in the Gulf of Mexico and the Caspian Sea. Until recently, however, such endeavors invariably took place in relatively shallow waters — a few hundred feet, at most — allowing oil companies to use conventional drills mounted on extended piers. Deepwater drilling, in depths exceeding 1,000 feet, is an entirely different matter. It requires specialized, sophisticated, and immensely costly drilling platforms that can run into the billions of dollars to produce.

The Deepwater Horizon, destroyed in the Gulf of Mexico in April 2010 as a result of a catastrophic blowout, is typical enough of this phenomenon. The vessel was built in 2001 for some $500 million, and cost around $1 million per day to staff and maintain. Partly as a result of these high costs, BP was in a hurry to finish work on its ill-fated Macondo well and move the Deepwater Horizon to another drilling location. Such financial considerations, many analysts believe, explain the haste with which the vessel’s crew sealed the well — leading to a leakage of explosive gases into the wellbore and the resulting blast. BP will now have to pay somewhere in excess of $30 billion to satisfy all the claims for the damage done by its massive oil spill.

Following the disaster, the Obama administration imposed a temporary ban on deep-offshore drilling. Barely two years later, drilling in the Gulf’s deep waters is back to pre-disaster levels. President Obama has also signed an agreement with Mexico allowing drilling in the deepest part of the Gulf, along the U.S.-Mexican maritime boundary.

Meanwhile, deepwater drilling is picking up speed elsewhere. Brazil, for example, is moving to exploit its “pre-salt” fields (so-called because they lie below a layer of shifting salt) in the waters of the Atlantic Ocean far off the coast of Rio de Janeiro. New offshore fields are similarly being developed in deep waters off Ghana, Sierra Leone, and Liberia.
By 2020, says energy analyst John Westwood, such deepwater fields will supply 10% of the world’s oil, up from only 1% in 1995. But that added production will not come cheaply: most of these new fields will cost tens or hundreds of billions of dollars to develop, and will only prove profitable as long as oil continues to sell for $90 or more per barrel.

Brazil’s offshore fields, considered by some experts the most promising new oil discovery of this century, will prove especially pricey, because they lie beneath one and a half miles of water and two and a half miles of sand, rock, and salt. The world’s most advanced, costly drilling equipment — some of it still being developed — will be needed. Petrobras, the state-controlled energy firm, has already committed $53 billion to the project for 2011-2015, and most analysts believe that will be only a modest down payment on a staggering final price tag.

Arctic Oil
The Arctic is expected to provide a significant share of the world’s future oil supply. Until recently, production in the far north has been very limited. Other than in the Prudhoe Bay area of Alaska and a number of fields in Siberia, the major companies have largely shunned the region. But now, seeing few other options, they are preparing for major forays into a melting Arctic.
From any perspective, the Arctic is the last place you want to go to drill for oil. Storms are frequent, and winter temperatures plunge far below freezing. Most ordinary equipment will not operate under these conditions. Specialized (and costly) replacements are necessary. Working crews cannot live in the region for long. Most basic supplies — food, fuel, construction materials — must be brought in from thousands of miles away at phenomenal cost.

But the Arctic has its attractions: billions of barrels of untapped oil, to be exact. According to the U.S. Geological Survey (USGS), the area north of the Arctic Circle, with just 6% of the planet’s surface, contains an estimated 13% of its remaining oil (and an even larger share of its undeveloped natural gas) — numbers no other region can match.

With few other places left to go, the major energy firms are now gearing up for an energy rush to exploit the Arctic’s riches. This summer, Royal Dutch Shell is expected to begin test drilling in portions of the Beaufort and Chukchi Seas adjacent to northern Alaska. (The Obama administration must still award final operating permits for these activities, but approval is expected.) At the same time, Statoil and other firms are planning extended drilling in the Barents Sea, north of Norway.

As with all such extreme energy scenarios, increased production in the Arctic will significantly boost oil company operating costs. Shell, for example, has already spent $4 billion alone on preparations for test drilling in offshore Alaska, without producing a single barrel of oil. Full-scale development in this ecologically fragile region, fiercely opposed by environmentalists and local Native peoples, will multiply this figure many times over.

Tar Sands and Heavy Oil
Another significant share of the world’s future petroleum supply is expected to come from Canadian tar sands (also called “oil sands”) and the extra-heavy oil of Venezuela. Neither of these is oil as normally understood. Not being liquid in their natural state, they cannot be extracted by traditional drilling materials, but they do exist in great abundance. According to the USGS, Canada’s tar sands contain the equivalent of 1.7 trillion barrels of conventional (liquid) oil, while Venezuela’s heavy oil deposits are said to harbor another trillion barrels of oil equivalent — although not all of this material is considered “recoverable” with existing technology.

Those who claim that the Petroleum Age is far from over often point to these reserves as evidence that the world can still draw on immense supplies of untapped fossil fuels. And it is certainly conceivable that, with the application of advanced technologies and a total indifference to environmental consequences, these resources will indeed be harvested. But easy oil this is not.

Until now, Canada’s tar sands have been obtained through a process akin to strip mining, utilizing monster shovels to pry a mixture of sand and bitumen out of the ground. But most of the near-surface bitumen in the tar-sands-rich province of Alberta has now been exhausted, which means all future extraction will require a far more complex and costly process. Steam will have to be injected into deeper concentrations to melt the bitumen and allow its recovery by massive pumps. This requires a colossal investment of infrastructure and energy, as well as the construction of treatment facilities for all the resulting toxic wastes. According to the Canadian Energy Research Institute, the full development of Alberta’s oil sands would require a minimum investment of $218 billion over the next 25 years, not including the cost of building pipelines to the United States (such as the proposed Keystone XL) for processing in U.S. refineries.

The development of Venezuela’s heavy oil will require investment on a comparable scale. The Orinoco belt, an especially dense concentration of heavy oil adjoining the Orinoco River, is believed to contain recoverable reserves of 513 billion barrels of oil — perhaps the largest source of untapped petroleum on the planet. But converting this molasses-like form of bitumen into a useable liquid fuel far exceeds the technical capacity or financial resources of the state oil company, Petróleos de Venezuela S.A. Accordingly, it is now seeking foreign partners willing to invest the $10-$20 billion needed just to build the necessary facilities.

The Hidden Costs
Tough-oil reserves like these will provide most of the world’s new oil in the years ahead. One thing is clear: even if they can replace easy oil in our lives, the cost of everything oil-related — whether at the gas pump, in oil-based products, in fertilizers, in just about every nook and cranny of our lives — is going to rise. Get used to it. If things proceed as presently planned, we will be in hock to big oil for decades to come.
And those are only the most obvious costs in a situation in which hidden costs abound, especially to the environment. As with the Deepwater Horizondisaster, oil extraction in deep-offshore areas and other extreme geographical locations will ensure ever greater environmental risks. After all, approximately five million gallons of oil were discharged into the Gulf of Mexico, thanks to BP’s negligence, causing extensive damage to marine animals and coastal habitats.

Keep in mind that, as catastrophic as it was, it occurred in the Gulf of Mexico, where vast cleanup forces could be mobilized and the ecosystem’s natural recovery capacity was relatively robust. The Arctic and Greenland represent a different story altogether, given their distance from established recovery capabilities and the extreme vulnerability of their ecosystems. Efforts to restore such areas in the wake of massive oil spills would cost many times the $30-$40 billion BP is expected to pay for the Deepwater Horizon damage and be far less effective.

In addition to all this, many of the most promising tough-oil fields lie in Russia, the Caspian Sea basin, and conflict-prone areas of Africa. To operate in these areas, oil companies will be faced not only with the predictably high costs of extraction, but also additional costs involving local systems of bribery and extortion, sabotage by guerrilla groups, and the consequences of civil conflict.

And don’t forget the final cost: If all these barrels of oil and oil-like substances are truly produced from the least inviting of places on this planet, then for decades to come we will continue to massively burn fossil fuels, creating ever more greenhouse gases as if there were no tomorrow. And here’s the sad truth: if we proceed down the tough-oil path instead of investing as massively in alternative energies, we may foreclose any hope of averting the most catastrophic consequences of a hotter and more turbulent planet.

So yes, there is oil out there. But no, it won’t get cheaper, no matter how much there is. And yes, the oil companies can get it, but looked at realistically, who would want it?

Hegemony and Its Dilemmas

Tuesday, February 14, 2012 by TomDispatch
“Losing” the World: American Decline in Perspective, Part 1

by Noam Chomsky

Significant anniversaries are solemnly commemorated -- Japan’s attack on the U.S. naval base at Pearl Harbor, for example. Others are ignored, and we can often learn valuable lessons from them about what is likely to lie ahead. Right now, in fact.

At the moment, we are failing to commemorate the 50th anniversary of President John F. Kennedy’s decision to launch the most destructive and murderous act of aggression of the post-World War II period: the invasion of South Vietnam, later all of Indochina, leaving millions dead and four countries devastated, with casualties still mounting from the long-term effects of drenching South Vietnam with some of the most lethal carcinogens known, undertaken to destroy ground cover and food crops.

The prime target was South Vietnam. The aggression later spread to the North, then to the remote peasant society of northern Laos, and finally to rural Cambodia, which was bombed at the stunning level of all allied air operations in the Pacific region during World War II, including the two atom bombs dropped on Hiroshima and Nagasaki. In this, Henry Kissinger’s orders were being carried out -- “anything that flies on anything that moves” -- a call for genocide that is rare in the historical record. Little of this is remembered. Most was scarcely known beyond narrow circles of activists.

When the invasion was launched 50 years ago, concern was so slight that there were few efforts at justification, hardly more than the president’s impassioned plea that “we are opposed around the world by a monolithic and ruthless conspiracy that relies primarily on covert means for expanding its sphere of influence” and if the conspiracy achieves its ends in Laos and Vietnam, “the gates will be opened wide.”

Elsewhere, he warned further that “the complacent, the self-indulgent, the soft societies are about to be swept away with the debris of history [and] only the strong... can possibly survive,” in this case reflecting on the failure of U.S. aggression and terror to crush Cuban independence.

By the time protest began to mount half a dozen years later, the respected Vietnam specialist and military historian Bernard Fall, no dove, forecast that “Vietnam as a cultural and historic entity… is threatened with extinction...[as]...the countryside literally dies under the blows of the largest military machine ever unleashed on an area of this size.” He was again referring to South Vietnam.

When the war ended eight horrendous years later, mainstream opinion was divided between those who described the war as a “noble cause” that could have been won with more dedication, and at the opposite extreme, the critics, to whom it was “a mistake” that proved too costly. By 1977, President Carter aroused little notice when he explained that we owe Vietnam “no debt” because “the destruction was mutual.”

There are important lessons in all this for today, even apart from another reminder that only the weak and defeated are called to account for their crimes. One lesson is that to understand what is happening we should attend not only to critical events of the real world, often dismissed from history, but also to what leaders and elite opinion believe, however tinged with fantasy. Another lesson is that alongside the flights of fancy concocted to terrify and mobilize the public (and perhaps believed by some who are trapped in their own rhetoric), there is also geostrategic planning based on principles that are rational and stable over long periods because they are rooted in stable institutions and their concerns. That is true in the case of Vietnam as well. I will return to that, only stressing here that the persistent factors in state action are generally well concealed.

The Iraq war is an instructive case. It was marketed to a terrified public on the usual grounds of self-defense against an awesome threat to survival: the “single question,” George W. Bush and Tony Blair declared, was whether Saddam Hussein would end his programs of developing weapons of mass destruction. When the single question received the wrong answer, government rhetoric shifted effortlessly to our “yearning for democracy,” and educated opinion duly followed course; all routine.

Later, as the scale of the U.S. defeat in Iraq was becoming difficult to suppress, the government quietly conceded what had been clear all along. In 2007-2008, the administration officially announced that a final settlement must grant the U.S. military bases and the right of combat operations, and must privilege U.S. investors in the rich energy system -- demands later reluctantly abandoned in the face of Iraqi resistance. And all well kept from the general population.

Gauging American Decline
With such lessons in mind, it is useful to look at what is highlighted in the major journals of policy and opinion today. Let us keep to the most prestigious of the establishment journals, Foreign Affairs. The headline blaring on the cover of the December 2011 issue reads in bold face: “Is America Over?”

The title article calls for “retrenchment” in the “humanitarian missions” abroad that are consuming the country’s wealth, so as to arrest the American decline that is a major theme of international affairs discourse, usually accompanied by the corollary that power is shifting to the East, to China and (maybe) India.

The lead articles are on Israel-Palestine. The first, by two high Israeli officials, is entitled “The Problem is Palestinian Rejection”: the conflict cannot be resolved because Palestinians refuse to recognize Israel as a Jewish state -- thereby conforming to standard diplomatic practice: states are recognized, but not privileged sectors within them. The demand is hardly more than a new device to deter the threat of political settlement that would undermine Israel’s expansionist goals.

The opposing position, defended by an American professor, is entitled “The Problem Is the Occupation.” The subtitle reads “How the Occupation is Destroying the Nation.” Which nation? Israel, of course. The paired articles appear under the heading “Israel under Siege.”

The January 2012 issue features yet another call to bomb Iran now, before it is too late. Warning of “the dangers of deterrence,” the author suggests that “skeptics of military action fail to appreciate the true danger that a nuclear-armed Iran would pose to U.S. interests in the Middle East and beyond. And their grim forecasts assume that the cure would be worse than the disease -- that is, that the consequences of a U.S. assault on Iran would be as bad as or worse than those of Iran achieving its nuclear ambitions. But that is a faulty assumption. The truth is that a military strike intended to destroy Iran’s nuclear program, if managed carefully, could spare the region and the world a very real threat and dramatically improve the long-term national security of the United States.”

Others argue that the costs would be too high, and at the extremes some even point out that an attack would violate international law -- as does the stand of the moderates, who regularly deliver threats of violence, in violation of the U.N. Charter.

Let us review these dominant concerns in turn.

American decline is real, though the apocalyptic vision reflects the familiar ruling class perception that anything short of total control amounts to total disaster. Despite the piteous laments, the U.S. remains the world dominant power by a large margin, and no competitor is in sight, not only in the military dimension, in which of course the U.S. reigns supreme.

China and India have recorded rapid (though highly inegalitarian) growth, but remain very poor countries, with enormous internal problems not faced by the West. China is the world’s major manufacturing center, but largely as an assembly plant for the advanced industrial powers on its periphery and for western multinationals. That is likely to change over time. Manufacturing regularly provides the basis for innovation, often breakthroughs, as is now sometimes happening in China. One example that has impressed western specialists is China’s takeover of the growing global solar panel market, not on the basis of cheap labor but by coordinated planning and, increasingly, innovation.

But the problems China faces are serious. Some are demographic, reviewed in Science, the leading U.S. science weekly. The study shows that mortality sharply decreased in China during the Maoist years, “mainly a result of economic development and improvements in education and health services, especially the public hygiene movement that resulted in a sharp drop in mortality from infectious diseases.” This progress ended with the initiation of the capitalist reforms 30 years ago, and the death rate has since increased.

Furthermore, China’s recent economic growth has relied substantially on a “demographic bonus,” a very large working-age population. “But the window for harvesting this bonus may close soon,” with a “profound impact on development”: “Excess cheap labor supply, which is one of the major factors driving China's economic miracle, will no longer be available.”

Demography is only one of many serious problems ahead. For India, the problems are far more severe.

Not all prominent voices foresee American decline. Among international media, there is none more serious and responsible than the London Financial Times. It recently devoted a full page to the optimistic expectation that new technology for extracting North American fossil fuels might allow the U.S. to become energy independent, hence to retain its global hegemony for a century. There is no mention of the kind of world the U.S. would rule in this happy event, but not for lack of evidence.

At about the same time, the International Energy Agency reported that, with rapidly increasing carbon emissions from fossil fuel use, the limit of safety will be reached by 2017 if the world continues on its present course. “The door is closing,” the IEA chief economist said, and very soon it “will be closed forever.”

Shortly before the U.S. Department of Energy reported the most recent carbon dioxide emissions figures, which “jumped by the biggest amount on record” to a level higher than the worst-case scenario anticipated by the International Panel on Climate Change (IPCC). That came as no surprise to many scientists, including the MIT program on climate change, which for years has warned that the IPCC predictions are too conservative.

Such critics of the IPCC predictions receive virtually no public attention, unlike the fringe of denialists who are supported by the corporate sector, along with huge propaganda campaigns that have driven Americans off the international spectrum in dismissal of the threats. Business support also translates directly to political power. Denialism is part of the catechism that must be intoned by Republican candidates in the farcical election campaign now in progress, and in Congress they are powerful enough to abort even efforts to inquire into the effects of global warming, let alone do anything serious about it.

In brief, American decline can perhaps be stemmed if we abandon hope for decent survival, prospects that are all too real given the balance of forces in the world.

“Losing” China and Vietnam
Putting such unpleasant thoughts aside, a close look at American decline shows that China indeed plays a large role, as it has for 60 years. The decline that now elicits such concern is not a recent phenomenon. It traces back to the end of World War II, when the U.S. had half the world’s wealth and incomparable security and global reach. Planners were naturally well aware of the enormous disparity of power, and intended to keep it that way.

The basic viewpoint was outlined with admirable frankness in a major state paper of 1948 (PPS 23). The author was one of the architects of the New World Order of the day, the chair of the State Department Policy Planning Staff, the respected statesman and scholar George Kennan, a moderate dove within the planning spectrum. He observed that the central policy goal was to maintain the “position of disparity” that separated our enormous wealth from the poverty of others. To achieve that goal, he advised, “We should cease to talk about vague and... unreal objectives such as human rights, the raising of the living standards, and democratization,” and must “deal in straight power concepts,” not “hampered by idealistic slogans” about “altruism and world-benefaction.”

Kennan was referring specifically to Asia, but the observations generalize, with exceptions, for participants in the U.S.-run global system. It was well understood that the “idealistic slogans” were to be displayed prominently when addressing others, including the intellectual classes, who were expected to promulgate them.

The plans that Kennan helped formulate and implement took for granted that the U.S. would control the Western Hemisphere, the Far East, the former British empire (including the incomparable energy resources of the Middle East), and as much of Eurasia as possible, crucially its commercial and industrial centers. These were not unrealistic objectives, given the distribution of power. But decline set in at once.

In 1949, China declared independence, an event known in Western discourse as “the loss of China” -- in the U.S., with bitter recriminations and conflict over who was responsible for that loss. The terminology is revealing. It is only possible to lose something that one owns. The tacit assumption was that the U.S. owned China, by right, along with most of the rest of the world, much as postwar planners assumed.

The “loss of China” was the first major step in “America’s decline.” It had major policy consequences. One was the immediate decision to support France’s effort to reconquer its former colony of Indochina, so that it, too, would not be “lost.”

Indochina itself was not a major concern, despite claims about its rich resources by President Eisenhower and others. Rather, the concern was the “domino theory,” which is often ridiculed when dominoes don’t fall, but remains a leading principle of policy because it is quite rational. To adopt Henry Kissinger’s version, a region that falls out of control can become a “virus” that will “spread contagion,” inducing others to follow the same path.

In the case of Vietnam, the concern was that the virus of independent development might infect Indonesia, which really does have rich resources. And that might lead Japan -- the “superdomino” as it was called by the prominent Asia historian John Dower -- to “accommodate” to an independent Asia as its technological and industrial center in a system that would escape the reach of U.S. power. That would mean, in effect, that the U.S. had lost the Pacific phase of World War II, fought to prevent Japan’s attempt to establish such a New Order in Asia.

The way to deal with such a problem is clear: destroy the virus and “inoculate” those who might be infected. In the Vietnam case, the rational choice was to destroy any hope of successful independent development and to impose brutal dictatorships in the surrounding regions. Those tasks were successfully carried out -- though history has its own cunning, and something similar to what was feared has since been developing in East Asia, much to Washington’s dismay.

The most important victory of the Indochina wars was in 1965, when a U.S.-backed military coup in Indonesia led by General Suharto carried out massive crimes that were compared by the CIA to those of Hitler, Stalin, and Mao. The “staggering mass slaughter,” as the New York Times described it, was reported accurately across the mainstream, and with unrestrained euphoria.

It was “a gleam of light in Asia,” as the noted liberal commentator James Reston wrote in theTimes. The coup ended the threat of democracy by demolishing the mass-based political party of the poor, established a dictatorship that went on to compile one of the worst human rights records in the world, and threw the riches of the country open to western investors. Small wonder that, after many other horrors, including the near-genocidal invasion of East Timor, Suharto was welcomed by the Clinton administration in 1995 as “our kind of guy.”

Years after the great events of 1965, Kennedy-Johnson National Security Adviser McGeorge Bundy reflected that it would have been wise to end the Vietnam war at that time, with the “virus” virtually destroyed and the primary domino solidly in place, buttressed by other U.S.-backed dictatorships throughout the region.

Similar procedures have been routinely followed elsewhere. Kissinger was referring specifically to the threat of socialist democracy in Chile. That threat was ended on another forgotten date, what Latin Americans call “the first 9/11,” which in violence and bitter effects far exceeded the 9/11 commemorated in the West. A vicious dictatorship was imposed in Chile, one part of a plague of brutal repression that spread through Latin America, reaching Central America under Reagan. Viruses have aroused deep concern elsewhere as well, including the Middle East, where the threat of secular nationalism has often concerned British and U.S. planners, inducing them to support radical Islamic fundamentalism to counter it.

The Concentration of Wealth and American Decline
Despite such victories, American decline continued. By 1970, U.S. share of world wealth had dropped to about 25%, roughly where it remains, still colossal but far below the end of World War II. By then, the industrial world was “tripolar”: US-based North America, German-based Europe, and East Asia, already the most dynamic industrial region, at the time Japan-based, but by now including the former Japanese colonies Taiwan and South Korea, and more recently China.

At about that time, American decline entered a new phase: conscious self-inflicted decline. From the 1970s, there has been a significant change in the U.S. economy, as planners, private and state, shifted it toward financialization and the offshoring of production, driven in part by the declining rate of profit in domestic manufacturing. These decisions initiated a vicious cycle in which wealth became highly concentrated (dramatically so in the top 0.1% of the population), yielding concentration of political power, hence legislation to carry the cycle further: taxation and other fiscal policies, deregulation, changes in the rules of corporate governance allowing huge gains for executives, and so on.

Meanwhile, for the majority, real wages largely stagnated, and people were able to get by only by sharply increased workloads (far beyond Europe), unsustainable debt, and repeated bubbles since the Reagan years, creating paper wealth that inevitably disappeared when they burst (and the perpetrators were bailed out by the taxpayer). In parallel, the political system has been increasingly shredded as both parties are driven deeper into corporate pockets with the escalating cost of elections, the Republicans to the level of farce, the Democrats (now largely the former “moderate Republicans”) not far behind.

A recent study by the Economic Policy Institute, which has been the major source of reputable data on these developments for years, is entitled Failure by Design. The phrase “by design” is accurate. Other choices were certainly possible. And as the study points out, the “failure” is class-based. There is no failure for the designers. Far from it. Rather, the policies are a failure for the large majority, the 99% in the imagery of the Occupy movements -- and for the country, which has declined and will continue to do so under these policies.

One factor is the offshoring of manufacturing. As the solar panel example mentioned earlier illustrates, manufacturing capacity provides the basis and stimulus for innovation leading to higher stages of sophistication in production, design, and invention. That, too, is being outsourced, not a problem for the “money mandarins” who increasingly design policy, but a serious problem for working people and the middle classes, and a real disaster for the most oppressed, African Americans, who have never escaped the legacy of slavery and its ugly aftermath, and whose meager wealth virtually disappeared after the collapse of the housing bubble in 2008, setting off the most recent financial crisis, the worst so far.

[Note: Part 2 of Noam Chomsky’s discussion of American decline, “The Imperial Way,” will be posted tomorrow.]

Massive World Events That Will Change Your Life

Crucial developments taking place in 2011 are changing the way we are likely to live on this planet for the foreseeable future.
By Michael T. Klare, Tomdispatch.com
Posted on June 5, 2011

Here’s the good news about energy: thanks to rising oil prices and deteriorating economic conditions worldwide, the International Energy Agency (IEA) reports that global oil demand will not grow this year as much as once assumed, which may provide some temporary price relief at the gas pump. In its May Oil Market Report, the IEA reduced its 2011 estimate for global oil consumption by 190,000 barrels per day, pegging it at 89.2 million barrels daily. As a result, retail prices may not reach the stratospheric levels predicted earlier this year, though they will undoubtedly remain higher than at any time since the peak months of 2008, just before the global economic meltdown. Keep in mind that this is the good news.

As for the bad news: the world faces an array of intractable energy problems that, if anything, have only worsened in recent weeks. These problems are multiplying on either side of energy’s key geological divide: below ground, once-abundant reserves of easy-to-get “conventional” oil, natural gas, and coal are drying up; above ground, human miscalculation and geopolitics are limiting the production and availability of specific energy supplies. With troubles mounting in both arenas, our energy prospects are only growing dimmer.

Here’s one simple fact without which our deepening energy crisis makes no sense: the world economy is structured in such a way that standing still in energy production is not an option. In order to satisfy the staggering needs of older industrial powers like the United States along with the voracious thirst of rising powers like China, global energy must grow substantially every year. According to the projections of the U.S. Department of Energy (DoE), world energy output, based on 2007 levels, must rise 29% to 640 quadrillion British thermal units by 2025 to meet anticipated demand. Even if usage grows somewhat more slowly than projected, any failure to satisfy the world’s requirements produces a perception of scarcity, which also means rising fuel prices. These are precisely the conditions we see today and should expect for the indefinite future.

It is against this backdrop that three crucial developments of 2011 are changing the way we are likely to live on this planet for the foreseeable future.

Tough-Oil Rebels

The first and still most momentous of the year’s energy shocks was the series of events precipitated by the Tunisian and Egyptian rebellions and the ensuing “Arab Spring” in the greater Middle East. Neither Tunisia nor Egypt was, in fact, a major oil producer, but the political shockwaves these insurrections unleashed has spread to other countries in the region that are, including Libya, Oman, and Saudi Arabia. At this point, the Saudi and Omani leaderships appear to be keeping a tight lid on protests, but Libyan production, normally averaging approximately 1.7 million barrels per day, has fallen to near zero.

When it comes to the future availability of oil, it is impossible to overstate the importance of this spring’s events in the Middle East, which continue to thoroughly rattle the energy markets. According to all projections of global petroleum output, Saudi Arabia and the other Persian Gulf states are slated to supply an ever-increasing share of the world’s total oil supply as production in key regions elsewhere declines. Achieving this production increase is essential, but it will not happen unless the rulers of those countries invest colossal sums in the development of new petroleum reserves -- especially the heavy, “tough oil” variety that requires far more costly infrastructure than existing “easy oil” deposits.

In a front-page story entitled “Facing Up to the End of ‘Easy Oil,’” the Wall Street Journal noted that any hope of meeting future world oil requirements rests on a Saudi willingness to sink hundreds of billions of dollars into their remaining heavy-oil deposits. But right now, faced with a ballooning population and the prospects of an Egyptian-style youth revolt, the Saudi leadership seems intent on using its staggering wealth on employment-generating public-works programs and vast arrays of weaponry, not new tough-oil facilities; the same is largely true of the other monarchical oil states of the Persian Gulf.

Whether such efforts will prove effective is unknown. If a youthful Saudi population faced with promises of jobs and money, as well as the fierce repression of dissidence, has seemed less confrontational than their Tunisian, Egyptian, and Syrian counterparts, that doesn’t mean that the status quo will remain forever. “Saudi Arabia is a time bomb,” commented Jaafar Al Taie, managing director of Manaar Energy Consulting (which advises foreign oil firms operating in the region). “I don’t think that what the King is doing now is sufficient to prevent an uprising,” he added, even though the Saudi royals had just announced a $36-billion plan to raise the minimum wage, increase unemployment benefits, and build affordable housing.

At present, the world can accommodate a prolonged loss of Libyan oil. Saudi Arabia and a few other producers possess sufficient excess capacity to make up the difference. Should Saudi Arabia ever explode, however, all bets are off. “If something happens in Saudi Arabia, [oil] will go to $200 to $300 [per barrel],” saidSheikh Zaki Yamani, the kingdom’s former oil minister, on April 5th. “I don’t expect this for the time being, but who would have expected Tunisia?”

Nuclear Power on the Downward Slope

In terms of the energy markets, the second major development of 2011 occurred on March 11th when an unexpectedly powerful earthquake and tsunami struck Japan. As a start, nature’s two-fisted attack damaged or destroyed a significant proportion of northern Japan’s energy infrastructure, including refineries, port facilities, pipelines, power plants, and transmission lines. In addition, of course, it devastated four nuclear plants at Fukushima, resulting, according to the U.S. Department of Energy, in the permanent loss of 6,800 megawatts of electric generating capacity.

This, in turn, has forced Japan to increase its imports of oil, coal, and natural gas, adding to the pressure on global supplies. With Fukushima and other nuclear plants off line, industry analysts calculate that Japanese oil imports could rise by as much as 238,000 barrels per day, and imports of natural gas by 1.2 billion cubic feet per day (mostly in the form of liquefied natural gas, or LNG).

This is one major short-term effect of the tsunami. What about the longer-term effects? The Japanese government now claims it is scrapping plans to build as many as 14 new nuclear reactors over the next two decades. On May 10th, Prime Minister Naoto Kan announced that the government would have to “start from scratch” in devising a new energy policy for the country. Though he speaks of replacing the cancelled reactors with renewable energy systems like wind and solar, the sad reality is that a significant part of any future energy expansion will inevitably come from more imported oil, coal, and LNG.

The disaster at Fukushima -- and ensuing revelations of design flaws and maintenance failures at the plant -- has had a domino effect, causing energy officials in other countries to cancel plans to build new nuclear plants or extend the life of existing ones. The first to do so was Germany: on March 14th, Chancellor Angela Merkelclosed two older plants and suspended plans to extend the life of 15 others. On May 30th, her government made the suspension permanent. In the wake of mass antinuclear rallies and an election setback, she promised to shut all existing nuclear plants by 2022, which, experts believe, will result in an increase in fossil-fuel use.

China also acted swiftly, announcing on March 16th that it would stop awarding permits for the construction of new reactors pending a review of safety procedures, though it did not rule out such investments altogether. Other countries, including India and the United States, similarly undertook reviews of reactor safety procedures, putting ambitious nuclear plans at risk. Then, on May 25th, the Swiss government announced that it would abandon plans to build three new nuclear power plants, phase out nuclear power, and close the last of its plants by 2034, joining the list of countries that appear to have abandoned nuclear power for good.

How Drought Strangles Energy

The third major energy development of 2011, less obviously energy-connected than the other two, has been a series of persistent, often record, droughts gripping many areas of the planet. Typically, the most immediate and dramatic effect of prolonged drought is a reduction in grain production, leading to ever-higher food prices and ever more social turmoil.

Intense drought over the past year in Australia, China, Russia, and parts of theMiddle East, South America, the United States, and most recently northern Europehas contributed to the current record-breaking price of food -- and this, in turn, has been a key factor in the political unrest now sweeping North Africa, East Africa, and the Middle East. But drought has an energy effect as well. It can reduce the flow of major river systems, leading to a decline in the output of hydroelectric power plants, as is now happening in several drought-stricken regions.

By far the greatest threat to electricity generation exists in China, which is suffering from one of its worst droughts ever. Rainfall levels from January to April in the drainage basin of the Yangtze, China's longest and most economically important river, have been 40% lower than the average of the past 50 years, according toChina Daily. This has resulted in a significant decline in hydropower and severe electricity shortages throughout much of central China.

The Chinese are burning more coal to generate electricity, but domestic mines no longer satisfy the country’s needs and so China has become a major coal importer. Rising demand combined with inadequate supply has led to a spike in coal prices, and with no comparable spurt in electricity rates (set by the government), many Chinese utilities are rationing power rather than buy more expensive coal and operate at a loss. In response, industries are upping their reliance on diesel-powered backup generators, which in turn increases China’s demand for imported oil, putting yet more pressure on global fuel prices.

Wrecking the Planet

So now we enter June with continuing unrest in the Middle East, a grim outlook for nuclear power, and a severe electricity shortage in China (and possibly elsewhere). What else do we see on the global energy horizon?

Despite the IEA’s forecast of diminished future oil consumption, global energy demand continues to outpace increases in supply. From all indications, this imbalance will persist.

Take oil. A growing number of energy analysts now agree that the era of “easy oil” has ended and that the world must increasingly rely on hard-to-get “tough oil.” It is widely assumed, moreover, that the planet harbors a lot of this stuff -- deep underground, far offshore, in problematic geological formations like Canada’s tar sands, and in the melting Arctic. However, extracting and processing tough oil will prove ever more costly and involve great human, and even greater environmental, risk. Think: BP’s Deepwater Horizon disaster of April 2010 in the Gulf of Mexico.

Such is the world’s thirst for oil that a growing amount of this stuff will nonetheless be extracted, even if not, in all likelihood, at a pace and on a scale necessary to replace the disappearance of yesterday’s and today’s easy oil. Along with continued instability in the Middle East, this tough-oil landscape seems to underlie expectations that the price of oil will only rise in the coming years. In a poll of global energy company executives conducted this April by the KPMG Global Energy Institute, 64% of those surveyed predicted that crude oil prices will cross the $120 per barrel barrier before the end of 2011. Approximately one-third of them predicted that the price would go even higher, with 17% believing it would reach $131-$140 per barrel; 9%, $141-$150 per barrel; and 6%, above the $150 mark.

The price of coal, too, has soared in recent months, thanks to mounting worldwide demand as supplies of energy from nuclear power and hydroelectricity have contracted. Many countries have launched significant efforts to spur the development of renewable energy, but these are not advancing fast enough or on a large enough scale to replace older technologies quickly. The only bright spot, experts say, is the growing extraction of natural gas from shale rock in the United States through the use of hydraulic fracturing (“hydro-fracking”).

Proponents of shale gas claim it can provide a large share of America’s energy needs in the years ahead, while actually reducing harm to the environment when compared to coal and oil (as gas emits less carbon dioxide per unit of energy released); however, an expanding chorus of opponents are warning of the threat to municipal water supplies posed by the use of toxic chemicals in the fracking process. These warnings have proven convincing enough to lead lawmakers in a growing number of states to begin placing restrictions on the practice, throwing into doubt the future contribution of shale gas to the nation’s energy supply. Also, on May 12th, the French National Assembly (the powerful lower house of parliament)voted 287 to 146 to ban hydro-fracking in France, becoming the first nation to do so.

The environmental problems of shale gas are hardly unique. The fact is that all of the strategies now being considered to extend the life-spans of oil, coal, and natural gas involve severe economic and environmental risks and costs -- as, of course, does the very use of fossil fuels of any sort at a moment when the first IEA numbers for 2010 indicate that it was an unexpectedly record-breaking year for humanity when it came to dumping greenhouse gases into the atmosphere.

With the easily accessible mammoth oil fields of Texas, Venezuela, and the Middle East either used up or soon to be significantly depleted, the future of oil rests on third-rate stuff like tar sands, shale oil, and extra-heavy crude that require a lot of energy to extract, processes that emit added greenhouse gases, and as with those tar sands, tend to play havoc with the environment.

Shale gas is typical. Though plentiful, it can only be pried loose from underground shale formations through the use of explosives and highly pressurized water mixed with toxic chemicals. In addition, to obtain the necessary quantities of shale oil, many tens of thousands of wells will have to be sunk across the American landscape, any of one of which could prove to be an environmental disaster.

Likewise, the future of coal will rest on increasingly invasive and hazardous techniques, such as the explosive removal of mountaintops and the dispersal of excess rock and toxic wastes in the valleys below. Any increase in the use of coal will also enhance climate change, since coal emits more carbon dioxide than do oil and natural gas.

Here’s the bottom line: Any expectations that ever-increasing supplies of energy will meet demand in the coming years are destined to be disappointed. Instead, recurring shortages, rising prices, and mounting discontent are likely to be the thematic drumbeat of the globe’s energy future.

If we don’t abandon a belief that unrestricted growth is our inalienable birthright and embrace the genuine promise of renewable energy (with the necessary effort and investment that would make such a commitment meaningful), the future is likely to prove grim indeed. Then, the history of energy, as taught in some late twenty-first-century university, will be labeled: How to Wreck the Planet 101.