A topical issue for the summer of 2004: people often forget just how dependent on fossil fuel our planet has become. One reason is that Individual families in rich countries can figure out how to reduce their energy use, and they know that after the 1970s rises in the price of oil, the United States became much more efficient.
Unfortunately, energy use is vast. Not only does it go to operate air conditioners, a use that many Americans figure they can reduce, or to operate automobiles, another use that many Americans figure they can reduce, but it goes to pay for new bridges in China, for growing food, for transporting people and materials.
Moreover, current energy use is fairly well defined by the size of the population and its wealth. Put another way, people on the planet tend to use roughly the same amount of energy even when its price changes by 50% or more. As an economist would say, the demand curve is more or less vertical. Part of the reason is technical: without considerable engineering change, a toy-making firm uses a certain number of joules when it makes a doll; and part of the reason is that oil and other energy sources cost so little compared to other costs. For the economy as a whole, a doubling of the price of oil increases total costs by about one-twentieth.
Over a period of a few months, supply is more or less fixed. Wells cannot pump more oil; refineries cannot convert more crude; coal mines cannot sharply increase production. Only by borrowing, by making use of stockpiled oil, can supply increase; and that cannot last long.
In the distant past, oil refineries normally ran `inefficiently'; that is to say, they had extra capacity. If provided with more crude, they could quickly increase their production of diesel fuel, gasoline, and the like. In the more recent past, Saudi Arabia operated its oil `mining' business `inefficiently', too. The Saudi government could dramatically increase the supply of crude that was extracted from its ground and delivered to ships. But over the past few decades, both those `buffers' (to use different language) have grown smaller.
Moreover, the whole oil industry is susceptible to attack. Everyone is aware of this. Consequently, pipelines, refineries, and terminals are all well guarded. But even with thousands of troops, some attacks succeed in destroying parts of the industry. In Iraq, for example, pipelines are freqently blown up.
My question is whether any organization, such as a non-state group like El Qaeda, has the capacity to damage an oil terminal in Angola or a pipeline in central Asia?
An attack could reduce the supply of oil by a percent or two. That amount of reduction could cause changes in the planetary economy, if only by inspiring the rich to express caution by spending less and saving more for themselves.
Reduced spending means less demand for oil; so, if all else were equal, its price should drop.
In addition, governments world-wide have plans for dealing with reduced monetary demand: they either lower interest rates in order to encourage more investment, whether in symbolic goods, such as stocks, or in physical goods, such as factories; or they spend more on public works, on military purchases, and on tax cuts for those who probabilistically speaking are more likely to spend than save. The governments do this in order to encourage more consumer spending.
Over the past three-quarters of a century or so, this procedure has mostly succeeded whenever demand fell.
But suppose that China and India continue to industrialize and to become richer? Then they will sharply increase their demand for energy.
The planetary energy industry is, to use a military phrase, a `target-rich environment'. From a military accountant's point of view, it is not that expensive to reduce world-wide energy supplies: rather than costing billions of US dollars, the cost is millions; rather than thousands of lives, hundreds. This is for an attacker; the costs for a defender are very high.
For example, to damage an oil terminal, a cluster of several dozen small boats could attack at once; only one of them need get through. While defenders can shoot and sink one or two or even seven or eight attacking boats and airplanes, it becomes harder as their number increases. It becomes especially hard if the attackers appear in some other guise that is expected, perhaps as a group of smugglers. It become hard if some of the defenders are blackmailed or bribed to shoot `to miss'.
The critical issue may not be `demand', as governments and economists have presumed correctly for so many decades, but `supply', and supply of a type that businessmen, economists, civil servants, and politicians tend to ignore: physical supply.
Nowadays, when people with money talk of `assets' they tend to mean symbolic assets, such as stocks, bonds, bank accounts, and money itself. When people on Wall Street talk about `barrels of oil' they tend to mean promises of the delivery of those `barrels of oil', not the oil itself.
The problem is not in underlying knowledge. Everyone knows about physical supply and physical demand. After all, supply and demand curves are about the relation of the physical and the price. Indeed, fears over future physical supplies are driving up the price of promises of future oil deliveries.
The problem is the transfer of underlying knowledge into a change of everyday action.
More specifically the question is what to do about either a long term reduction in the supply of oil or, more insidiously, an increase in demand for oil and an increase in supply at a slower rate.
Given that people in places like China and India want to become richer than they are, then the only solution is to provide more alternative sources of energy.
Unfortunately, currently available alternative sources of energy either collect low density energy, or depend on uranium and plutonium fission, or depend on an as yet unrealized fantasy that involves hydrogen or hydrogen-boron fusion.
When political action sharply reduced the supply of fossil fuel in the 1970s, rich countries like the US, Japan, and those in western Europe changed their industries to become more efficient and pushed for more wind, wave, solar, and re-usable energy sources.
However, rather than spend a fraction of their incomes that corresponded with their military spending — several percent of gross domestic product — they spent little. Moreover, in the US spending was eventually cut.
I think that the Europeans, inspired by France should spend 200 billion Euros each year on alternative sources of energy. For example, for fusion, we should see a fortune spent on research on superconductors that can bear higher magnetic fields.
The reasons that countries have not spent more on alternative sources of energy are two-fold. Firstly, alternative sources are expensive. If its supply is not interrupted, Middle Eastern oil can be cheap. Some say its cost per barrel delivered to Western Europe is no more than one-tenth its current cost. Some alternative sources promise to have high initial cost and a low incremental cost of production. But these are either still fantasies, like hydrogen fusion and high-efficiency biomass growth, or unpopular, like uranium and plutonium fission.
Other alternative sources are likely always to suffer from a high initial cost and a high incremental cost because they collect diffuse or intermittent energy: solar energy is intermittent. Not only does the sun go down each night, but clouds appear. The wind blows as it will. And waves often are too strong or too weak.
Secondly, some powers may reason accurately that they can advance their own interests by behavior that is harmful to others. In such a situation, even after perceiving the problem, a society may fail to try to solve it .
As for how accurate, truthful, or reliable I judge the various reports I have heard regarding energy supply vulnerability:
Putting these three `certainty factors' together, the result is highly suggestive.
We lack a past history in which non-state organizations tried to disrupt modern energy supplies — wars in the past have involved states. (They certainly tried to disrupt or destroy supply and delivery; just look at World War II.)
Hence, to predict whether energy supplies will actually be disrupted in a dramatic fashion is like estimating the likelihood of a one-time-only event, since even the first of a series has not yet happened, at least not that we have perceived. (Some say that attacks on oil in Iraq are a beginning.)
As for a series: while Americans tend to think only of weeks and months, a campaign might involve attacks which reduce world oil supplies by a percent or two and which occur three or five years apart. Such a slow moving war might mean that the people who govern rich countries may fail to perceive a threat and fail to engage in an expensive, generation-long effort to change their sources of supply.
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